Qualified Charitable Distribution (QCD)

What is a Qualified Distribution?

A qualified distribution is a payment made directly from a retirement account custodian to a qualified charity. (A QCD can NOT be executed by the taxpayer. If the taxpayer 'writes the check,' it is an Itemized Deduction.)

The effect of this contribution is to reduce the taxable amount of the distribution (thereby reducing taxable income) without having to use Schedule A to list the contribution as a charitable deduction.

NOTE: There are other benefits, as well. Fidelity has a great explanation of this topic. We are not allowed to give investment advice to our clients, but if you are interested in learning more about it for yourself, this is a good resource.

What is a Qualified Charity?

According to IRS Publication 526: "You can deduct your contributions only if you make them to a qualified organization. Most organizations, other than churches and governments, must apply to the IRS to become a qualified organization." Refer to Pub 526 for complete details.

IMPORTANT NOTE

The taxpayer is not allowed to 'double-dip' with this payment to the charity. Specifically, if the QCD is used to reduce the Taxable Amount of the 1099-R distribution, it cannot also be taken as a charitable contribution on Schedule A.

How to Document a QCD on a Tax Return

In order to document a QCD, a taxpayer should present two forms: 1) a standard 1099R showing the total distribution from the account for the tax year, and 2) an affadavit from the account custodian documenting the QCD amount and the charity to which the contribution was sent.

Following are the steps to enter the QCD information.

  1. In TaxSlayer, navigate to a 1099-R entry screen.

  2. Enter the 1099-R data as usual EXCEPT manually reduce the taxable amount in box 2a by the amount of the QCD.

    In this example, the Gross Distribution was $15,000, and the amount of the QCD was $3,000, therefore the Taxable Amount in box 2a is $12,000.

    On the 1099-R or a separate sheet of paper, neatly document the math of your computation and the reason why. If doing this on a separate sheet of paper, include it with the taxpayer's documents.

  3. Complete the rest of the entries on the 1099-R screen and click on Continue in order to save the data.

  4. Go back to the IRA/Pension Distributions menu (illustrated after step 1, above) and select Nontaxable Distributions.

  5. In the next screen, check the box for Qualified Charitable Distribution (QCD).

    Notice a warnng box appears reminding you to make sure the taxable amount was reduced by the amount of the QCD.

  6. Click on Continue at the bottom of that screen in order to save your selection.