Making charitable gifts from your IRA is a truly tax-smart idea for many people 70½ and over.
Each year, we work with an ever-growing number of clients making charitable gifts from their IRA so they can maximize their tax savings, reduce their taxable income, and of course support their favorite charities.
There’s just one thing you need to do when it comes to tax reporting, and that is to tell your tax preparer that you made QCDs and fill them in on all the details. Failing to do this would be like fumbling the ball on the 1-yard line, and could lead you to overpay your taxes.
At year-end, your IRA custodian or broker issues Form 1099-R, which reports the amount of money you withdrew from your IRA. However, it does not break out or identify the amount that actually went to the charity or charities, instead of being paid to you.
Of course, the amount paid directly to the charities as a QCD is not taxable to you. That’s why it’s crucial that you tell your tax preparer how much went to charity, so it can be properly reported on your tax return. Every dollar that was gifted to a qualified charity reduces your taxable income dollar-for-dollar. If you do not tell your tax preparer, they will have no way of knowing the size of your charitable gift and could overstate taxes due.
The Takeaway: As part of our tax concierge service for clients, we’ll alert you – and your tax advisor, with your permission of course – to any relevant charitable gifts so you can take full advantage of any deductions and exclusions and not overpay your taxes. That’s just one additional way we make our clients’ lives easier and support their charitable activities.