Question: I transferred part of my required minimum distribution directly from my IRA to charity, which should be a tax-free charitable distribution and not included in my adjusted gross income. The problem is that my broker reported the entire RMD on my Form 1099-R as a taxable distribution. Should I get my broker to amend the 1099-R to specify how much of the total distribution was a tax-free charitable transfer so the discrepancy doesn’t raise red flags with the IRS? And how will my tax preparer know that part of the distribution shouldn’t be taxable?
Answer: Even though your broker made the tax-free transfer from your IRA to charity (called a qualified charitable distribution or QCD), your 1099-R form is going to report the total amount of the distribution. “The QCD is invisible in the 1099-R,” says Ed Slott, CPA, an IRA expert and publisher of IRAhelp.com. “The forms are not coded for a QCD, and it looks the same as a distribution. It’s up to you to tell your tax preparer that part of the distribution was a QCD.”
Slott says brokers don’t specify which portion is a QCD because, even though they made the transfer, they usually don’t want to be responsible for determining whether or not the charity was an eligible 501(c)(3) organization.
Sign up for Kiplinger’s Free E-Newsletters
Profit and prosper with the best of expert advice on investing, taxes, retirement, personal finance and more - straight to your e-mail.
Profit and prosper with the best of expert advice - straight to your e-mail.
You’ll report the total distribution on line 4a of your Form 1040 when you file your income tax return, then write the taxable amount on line 4b and write “QCD” to explain why part of the distribution isn’t taxable. (If your total distribution was a QCD, you’d write $0 on line 4b and QCD next to it.)
“Filers who aren’t on their toes may make a mistake here and overpay their taxes by failing to reduce the taxable amount of IRA withdrawals by the amount of the charitable gift,” says Mari Adam, a certified financial planner in Boca Raton, Fla., who works with many clients who give their RMDs to charity. It’s important to keep the records of the charitable transfer in case the IRS does ask about the difference. Keep the record from your broker showing that the money was transferred to the charity. And keep the acknowledgment from the charity of the gift, as you would with any other donation.
It’s essential that you tell your tax preparer (or plug into your tax software) the amount of your IRA distribution that was a tax-free QCD. Otherwise, there is no way of knowing that any part of the distribution is tax-free just by looking at your 1099. “The taxpayer needs to be very vigilant,” says Adam.
A QCD permits people age 70½ and older to transfer up to $100,000 directly from their IRA to charity each year tax-free; this money counts toward their required minimum distribution but isn’t included in their adjusted gross income. For more information about qualified charitable distributions, see The Rules for Making a Tax-Free Donation From an IRA. To learn more about how to report the QCD on your tax return, see How to Report an IRA Charitable Distribution on Your Tax Return.
-
-
Louisiana Tax Relief Granted After Seawater Intrusion
Tax Relief The IRS has granted Louisiana tax relief to affected taxpayers following seawater intrusion of the Mississippi River.
-
A 10-Year Checklist For Retirement Planning
This checklist for retirement planning will help you get in shape 10 years out.
-
Millionaire Tax Evaders Beware: The IRS Is Coming
Tax Evasion The IRS is targeting 1,600 millionaire tax evaders and 575 partnerships. Are you on the agency’s priority list?
-
IRS Announces Florida Tax Relief Following Hurricane Idalia
Tax Deadline In response to the severe damage caused by Hurricane Idalia, the IRS has extended tax deadlines for affected Floridians.
-
Are You Mistakenly Dead to the IRS?
IRS A new report says the IRS placed 'deceased locks' on accounts of more than 90,000 taxpayers who weren’t dead.
-
Bond Basics: Zero-Coupon Bonds
investing These investments are attractive only to a select few. Find out if they're right for you.
-
Warning: Watch Out for New IRS Refund Mail Scam
Tax Scams If you receive a cardboard envelope appearing to be from the IRS about an unclaimed tax refund, be cautious. It’s a new scam.
-
Your Frequently Asked Tax Questions Answered: Kiplinger Tax Letter
Kiplinger Tax Letter The Kiplinger Tax Letter receives a lot of reader tax questions and its editor, Joy Taylor answers a selection of them.
-
Supreme Court: Yes, the IRS Can Secretly Obtain Your Bank Records
The Supreme Court has sided with the IRS in a case that involves owing the IRS money, taxpayer privacy, and notice.
-
Will an IRS Tax Prep Service Replace H&R Block or TurboTax?
A government-run tax preparation and filing service has some wondering if people will leave H&R Block and TurboTax and let the IRS do their taxes instead.
