We wrote a blog last year highlighting a charitable gifting strategy that became more attractive for many families under the new tax law. That strategy, known as Qualified Charitable Distributions (QCDs), allows you to make charitable gifts directly from your Individual Retirement Account (IRA) to help satisfy your Required Minimum Distribution.
If you missed that article, you can find it here to learn more about the logistics and mechanics of the strategy.
If the QCD strategy was appropriate for you and you acted on it in 2018, now you must make sure that the strategy is reported accurately on your tax return. Unfortunately, this is not as straightforward as one would think because IRA custodians do not make any special tax reporting of your QCD.
QCDs are reported as a normal distribution on IRS Form 1099-R for any non-Inherited IRAs. In other words, the Form 1099-R will NOT make any mention of your QCDs. It is your responsibility to tell your tax preparer the amount of IRA distributions that were QCDs. This will allow him or her to mark the appropriate amount as non-taxable on your return.
For Inherited IRAs, it is also your responsibility to tell your tax preparer the amount of IRA distributions that were QCDs. The QCD will be reported as a taxable distribution.
What if you prepare your own taxes?
The instructions for reporting a QCD can be found in the instructions for Form 1040. From the instructions directly:
If all or part of the distribution is a qualified charitable distribution (QCD), enter the total distribution on line 4a. If the total amount distributed is a QCD, enter -0- on line 4b. If only part of the distribution is a QCD, enter the part that is not a QCD on line 4b unless Exception 2 applies to that part. Enter “QCD” next to line 4b.
Exception 2 noted above states that you must also file Form 8606 (Nondeductible IRAs) if you made a qualified charitable distribution and regular distribution from a traditional IRA in which you have ever made nondeductible contributions; or if a qualified charitable distribution was made from a Roth IRA, which we would be unlikely to ever recommend.
For more information about the tax reporting for QCDs, see the IRS’s IRA FAQs — Distributions (Withdrawals) or reach out to a tax professional. As always, please reach out to your Wealth Advisor with any questions and to discuss charitable gifting strategies for 2019.
Important disclosure information
Please remember that different types of investments involve varying degrees of risk, including the loss of money invested. Past performance may not be indicative of future results. Therefore, it should not be assumed that future performance of any specific investment or investment strategy, including the investments or investment strategies recommended or undertaken by RegentAtlantic Capital, LLC (“RegentAtlantic”) will be profitable.
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This article is not a substitute for personalized advice from RegentAtlantic. This article is current only as of the date on which it was sent. The statements and opinions expressed are, however, subject to change without notice based on market and other conditions and may differ from opinions expressed in other businesses and activities of RegentAtlantic. Descriptions of RegentAtlantic’s process and strategies are based on general practice and we may make exceptions in specific cases.
RegentAtlantic does not provide legal or tax advice. Please consult with a legal and or tax professional of your choosing prior to implementing any of the strategies discussed in this article.