3 Things You Need to Know About Qualified Charitable Distributions

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We have received many questions regarding whether distributions made during 2015 to a charity is tax-exempt. The answer is finally here for many Americans who are age 70 ½ and older.  Qualified Charitable Distributions (QCDs) which expired on December of 2014 has been made permanent by The Consolidated Appropriations Act of 2016 signed into law by President Obama on December 18, 2015. 

What's a Qualified Charitable Distribution (QCD)?

Qualified Charitable Distributions (QCDs) are IRA distributions that are treated as tax-exempt as long as the distribution is paid directly to a charitable institution.  Keep in mind not all charities qualify for this.  As an example donor-advised funds and supporting organizations are not eligible recipients. 

Who is qualified for a QCD?

Eligible individuals for this provision are individuals who are age 70 ½ or older as well as beneficiaries who are age 70 ½ or older.  Unlike charitable contribution tax deductions which reduce an individual’s taxable income, QCDs are not includable as taxable income. The maximum each tax-payer can distribute per year, for this reason, is $100,000.  For a married couple that would be a total of $200,000. This distribution also counts towards the individual’s required minimum distribution (RMD) for the year.

How is reporting done for a QCD?

Trustees and Custodians of IRAs will report the distribution as a normal distribution although the check or wire is made payable to the charitable institution The reason being, there is a maximum amount of distributions available for this benefit. It is the taxpayers responsibility to monitors this maximum. The tax payer declares the amount of the distribution applied toward QCD on their IRS Form 1040. On line 15a of the IRS Form 1040, they report the amount of distribution(s) with and acronym QCD on line 15b.

Good, news! This law is now permanent:

Since inception, the law was always subject to an expiration date.  Yearly taxpayers wonder whether this law is still in effect. The last expiration date was December of 2014.  The Consolidated Appropriations Act of 2016 was signed into law on December 18, 2015, by President Obama making this law permanent. 

Did you know distributions can be more convenient and less costly with The Entrust Group myDirection Distribution Card? Learn more here.

If you want to know more about taking distributions from self-directed IRAs, please contact us.