Once again we must advise taxpayers over age 70½ to procrastinate taking their required minimum distribution (RMD) this year if they have charitable intentions. We advised waiting last year because the tax law provision that allowed Qualified IRA Charitable Distribution (QCD) ended on December 31, 2013. We hoped Congress would act to reinstate the provision in 2014. Our patience was rewarded in mid-December with a temporary extension of the provision. Unfortunately, it was only extended for 2014. Now we must wait to see if it will be extended again for 2015.
The ability to give directly to a charity from your IRA is a very important tax advantage for certain taxpayers. The provision allows IRA owners who are 70½ to give directly to a charity and avoid reporting the income on their tax return. Taxpayers who take the standard deduction receive no benefit from charitable deductions, unless it comes out of their IRA. A QCD lowers modified adjusted income (MAGI), which could lower or eliminate the taxation of Social Security benefits. Lower Medicare premiums are possible for those with higher income because MAGI is the trigger point that can be helped by a QCD.
The distribution must go directly from your IRA custodian to the charity to qualify as a QCD. The charity needs to acknowledge the gift for your records. You must then report the gross amount of their distribution on line 15a of tax form 1040, and then carry over only the taxable amount to line 15b. If the entire distribution went to the charity, then this number will be zero. Write “QCD” next to line 15b to further identify the transaction.
Hopefully Congress will act quickly this year to extend the QCD provision or finally make it permanent. However, that has not been their track record in the past, so get ready to wait.