FAQs on QCDs

FAQs on QCDs

You can have MAXIMUM impact on your community by donating your required minimum distribution.

The higher standard deduction, which for 2023 will be $13,550 for singles and $27,700 for joint filers, has caused fewer taxpayers to take the itemized deduction on their tax returns.  While this may make it easier to prepare your return, you are missing out on claiming a deduction for donations made to qualified charities.  The government is looking at increasing the above the line contribution deduction, but did you know that you can get even more “bang for your buck” by using your Required Minimum Distribution (RMD) to make a Qualified Charitable Deduction (QCD)?

What is an RMD?

An RMD is your required minimum distribution that you must begin withdrawing from your individual retirement account (IRA) when you turn 72 years old (70 1/2 before January 1, 2020).

Do I have to pay taxes on this distribution?

This withdrawal is a taxable event and is added to all other taxable income you receive. Depending on your income level, this distribution may be taxable.

Is there a way to avoid taxes on this distribution?

Yes, there is!  Once you turn 70 ½ years old, you can donate your required minimum distributions (any amount up to $100,000 annually) to the 501(c)3 entity of your choice and not be taxed on the donation portion of your distribution. This is referred to as a Qualified Charitable Distribution (QCD).

What’s the catch?

It seems too good to be true, right?  The only “catch” is that the money must be transferred directly from your account to the 501(c)3 charity. You should work directly with your broker or bank to make the transfer. The funds can never be given to you or deposited into your personal bank account. The second most important thing to remember is to tell your tax preparer about your QCD so that they can properly report the distribution on your income tax return. So, make sure to get that donation receipt!

Can the McPherson County Community Foundation receive my QCD?

YES! The great news is that the Foundation can and does accept Qualified Charitable Distributions.  QCDs to the Foundation can be given to an Endowment Fund or to the Operating fund.  An endowment is a permanent fund for an organization or particular purpose. Endowment Funds make grants once a year forever to support that organization.  Donations may also be made to the Foundation’s operating fund which works to promote endowments and philanthropy work throughout our county. Your QCD CANNOT go to a Donor Advised Fund.

The information provided is not intended as tax or legal advice and should not be relied as such. Please contact your tax and/or legal professional for guidance on your situation.

Michelle Huddle