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Those over 70-1/2 and subject to required minimum distributions can instead donate directly from the IRA to a 501c3 charity. The donation counts toward their required minimum distribution.

IRS Publication 590 p 40

Qualified charitable distributions.

A qualified charitable distribution (QCD) is generally a nontaxable distribution made directly by the trustee of your IRA (other than a SEP or SIMPLE IRA) to an organization eligible to receive tax-deductible contributions. You must be at least age70-1/2 when the distribution was made. Also, you must have the same type of acknowledgement of your contribution that you would need to claim a deduction for a charitable contribution. See Records To Keep in Publication 526, Charitable Contributions.

The maximum annual exclusion for QCDs is $100,000. Any QCD in excess of the $100,000 exclusion limit is included in income as any other distribution. If you file a joint return, your spouse can also have a QCD and exclude up to $100,000. The amount of the QCD is limited to the amount of the distribution that would otherwise be included in income. If your IRA includes nondeductible contributions, the distribution is first considered to be paid out of otherwise taxable income
. . .

For most people the QCD would seem to offer no advantage compared to taking the mandatory distribution and then donating it to charity for a deduction. However, the charity deduction is limited to 50% of adjusted gross income (for 501c3 charities) and can be as little as 20% in some cases. Apparently QCD is an exception to this limit that allows contributions up to $100k without regard to AGI.
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For most people the QCD would seem to offer no advantage compared to taking the mandatory distribution and then donating it to charity for a deduction.
If one does not itemize deductions the QCD reduces income thereby reducing tax.

Bob
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For most people the QCD would seem to offer no advantage compared to taking the mandatory distribution and then donating it to charity for a deduction.

For anyone whose social security benefits are partly taxable, the reduction in AGI from excluding the RMD will also reduce the amount of the SS benefits which are taxable.

--Peter
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Peter this is another potential issue for anybody on Medicare. I say potential because I have had two different tax pros give two different answers.

Funds from an IRA whether to the IRA's owner or sent directly to the charity, will result in a 1099.

Tax pro #1 says funds get entered normally which result in raising the AGI by the amount of to donation. The funds are listed as a deduction, but this does not change the AGI. If AGI increases enough, the MAGI will result in higher Medicare Part B and Part D premiums.

Tax pro #2 say do not enter the 1099 information as income on the forms since the funds never entered the hands of the IRA owner.

I really don't care what the correct situation is, but I just don't want people reading this to suddenly be surprised in the event Tax Pro #1 is right.

Gordon
Atlanta
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The tax law is very clear. A qualified donation directly to a charity from an IRA is not reported on your tax return. See Internal Revenue Code Section 408(d)(8). That lowers your AGI for medicare purposes as well.

Yes, you will get a 1099-R for that contribution. You leave it off the return and retain the appropriate documentation to show the IRS in case they question why it was left off.

In short, your Tax Pro #1 was wrong.

--Peter
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The tax law is very clear. A qualified donation directly to a charity from an IRA is not reported on your tax return. See Internal Revenue Code Section 408(d)(8). That lowers your AGI for medicare purposes as well.

Yes, you will get a 1099-R for that contribution. You leave it off the return and retain the appropriate documentation to show the IRS in case they question why it was left off.

In short, your Tax Pro #1 was wrong.


Yes, Tax Pro #1 was wrong, but in effect, qualified charitable distributions are "reported" on Form 1040. They're just are not included in adjusted gross income. See the instructions for 2012 Form 1040, Lines 15a and 15b.

Enter the total of IRA distributions from Forms 1099-R on Line 15a, "IRA distributions." Enter the part that is not for qualified charitable distributions on Line 15b, "Taxable amount." Enter "QCD" next to Line 15b.

Not a tax pro, but can follow instructions,

Ratio ~
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Thanks, Ratio, for filling in the piece I missed. Good information.

--Peter
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