Qualified Charitable Distributions

Qualified charitable distributions allow eligible IRA owners up to $100,000 in tax-free gifts to charity

WASHINGTON —The Internal Revenue Service today reminded individual retirement arrangement (IRA) owners age 70½ or over that they can transfer up to $100,000 to charity tax-free each year.

These transfers, known as qualified charitable distributions or QCDs, offer eligible older Americans a great way to easily give to charity before the end of the year. And, for those who are at least 73 years old, QCDs count toward the IRA owner’s required minimum distribution (RMD) for the year.

How to set up a QCD

Any IRA owner who wishes to make a QCD for 2023 should contact their IRA trustee soon so the trustee will have time to complete the transaction before the end of the year.

Normally, distributions from a traditional IRA are taxable when received. With a QCD, however, these distributions become tax-free as long as they’re paid directly from the IRA to an eligible charitable organization.

QCDs must be made directly by the trustee of the IRA to the charity. An IRA distribution, such as an electronic payment made directly to the IRA owner, does not count as a QCD. Likewise, a check made payable to the IRA owner is not a QCD.

Each year, an IRA owner age 70½ or over when the distribution is made can exclude from gross income up to $100,000 of these QCDs. For a married couple, if both spouses are age 70½ or over when the distributions are made and both have IRAs, each spouse can exclude up to $100,000 for a total of up to $200,000 per year.

The QCD option is available regardless of whether an eligible IRA owner itemizes deductions on Schedule A. Transferred amounts are not taxable, and no deduction is available for the transfer.

Report correctly

A 2023 QCD must be reported on the 2023 federal income tax return, normally filed during the 2024 tax filing season.

In early 2024, the IRA owner will receive Form 1099-R from their IRA trustee that shows any IRA distributions made during calendar year 2023, including both regular distributions and QCDs. The total distribution is shown in Box 1 on that form. There is no special code for a QCD.

Like other IRA distributions, QCDs are reported on Line 4 of Form 1040 or Form 1040-SR. If part or all of an IRA distribution is a QCD, enter the total amount of the IRA distribution on Line 4a. This is the amount shown in Box 1 on Form 1099-R.

Then, if the full amount of the distribution is a QCD, enter 0 on Line 4b. If only part of it is a QCD, the remaining taxable portion is normally entered on Line 4b.

Either way, be sure to enter “QCD” next to Line 4b. Further details will be in the instructions to the 2023 Form 1040.

Get a receipt

QCDs are not deductible as charitable contributions on Schedule A. But, as with deductible contributions, the donor must get a written acknowledgement of their contribution from the charitable organization before filing their return.

In general, the acknowledgement must state the date and amount of the contribution and indicate whether the donor received anything of value in return. For details, see the Acknowledgement section in Publication 526, Charitable Contributions.

For more information about IRA distributions and QCDs, see Publication 590-B, Distributions from Individual Retirement Arrangements (IRAs).

Tax season rapidly approaching: Get ready now to file 2023 federal income tax returns in early 2024

 

Get helpful information to file through IRS Online Account

Taxpayers can create or access their Online Account at IRS.gov/account. New users should have their photo identification ready.

With an Online Account taxpayers can access a variety of helpful information to help them during the 2024 filing season, including:

• View key data from the most recently filed tax return, including adjusted gross income.
• Get account transcripts.
• Sign power of attorney and tax information authorizations.
• Receive notices electronically.
• Get email notifications for new account information or activity.
• Make and view payments.
• View, create or change payment plans.
• See the amount owed by year.

Gather, organize and update tax records

Organizing tax records makes it easier to prepare a complete and accurate tax return. It helps avoid errors that can slow down refunds and may also help find overlooked deductions or tax credits.

Most income is taxable, including unemployment compensation, refund interest and income from the gig economy and digital assets. Taxpayers should gather Forms W-2, Wage and Tax Statement, Forms 1099-MISC, Miscellaneous Income, and other income documents before filing their return.

Don't forget to notify the IRS of an address change and be sure to notify the Social Security Administration of any legal name changes as soon as possible.

Be sure paychecks have enough tax withheld; time running out to make 2023 changes

The Tax Withholding Estimator is a tool on IRS.gov that can help taxpayers determine the right amount of tax to have withheld from their paychecks. This tool can be helpful if an earlier tax return resulted in tax owed or a large refund. And for those that have life changes or events such as getting married or divorced or welcoming a child, or for those taking on a second job or managing self-employment income, it can help calculate estimated tax payments. To change federal tax withholding, taxpayers will need to update their withholding with their employer, either online or by submitting a new Form W-4, Employee's Withholding Allowance Certificate.

But to make adjustments in time to affect 2023 tax withholding, taxpayers need to act quickly. Only a few pay periods remain in the year, and payroll systems need time to make withholding changes.

Speed refunds with direct deposit

Direct deposit is the fastest and safest way to get a tax refund. Taxpayers can make direct deposits to bank accounts, banking apps and reloadable debit cards, but will need to provide the routing and account information associated with the account. If the routing and account number cannot be located, taxpayers should contact their bank, financial institution or app provider.

Taxpayers requesting a paper check are much more likely to report an issue getting their refund because of non-receipt, forgery, theft or checks returned for a bad address, compared to taxpayers using direct deposit.

Need a bank account? Taxpayers without a bank account can learn how to open an account at an FDIC-Insured bank or with a credit union through the National Credit Union Locator tool. Veterans can use the Veterans Benefits Banking Program to find participating banks and credit unions that offer free accounts.

Volunteer to help eligible taxpayers file their tax returns

The IRS and its community partners are looking for people around the country interested in becoming IRS-certified volunteers. Join the Volunteer Income Tax Assistance (VITA) and Tax Counseling for the Elderly (TCE) programs and help eligible taxpayers with free tax preparation. Visit IRS.gov/volunteers to learn more and sign up. After signing up, volunteers will receive more information about attending a virtual orientation.

Bookmark IRS.gov resources and online tools

Everyone should make IRS.gov their first stop. Here they'll find online tools to help get them the information they need. The tools are easy-to-use and available 24 hours a day. Millions of people use them to help file and pay taxes, track their refunds, find information about their accounts and get answers to tax questions.

Tips for choosing a tax pro

Tax professionals play an essential role for taxpayers and the nation's tax system. There are many types of tax return preparers, including certified public accountants, enrolled agents, attorneys and many others who don't have a professional credential. Preparers should be skilled in tax preparation and accurately filing income tax returns. Taxpayers trust them with their most personal information.

Most tax return preparers provide outstanding and professional tax service. However, choosing the wrong tax return preparer hurts taxpayers financially every year. Be sure to check tips for choosing a tax preparer and how to avoid unethical "ghost" return preparers.

People can use the IRS Directory of Federal Tax Return Preparers with Credentials and Select Qualifications.

Employee Retention Credit - Pro Tip

In my 20+ years as a CPA I've not seen a greater tax benefit to small businesses as the Employee Retention Credit. I've also not seen a tax benefit more neglected or misunderstood. The ERC Credit was enacted in March 2020 as one of the provisions that came from the $2 trillion stimulus bill called the CARES (Coronavirus Aid, Relief, and Economic Security) Act. The credit could be claimed against 50% of qualified wages between March 13 2020 to December 31, 2020 up to $10,000 per employee annually. The more popular stimulus provision from the CARES Act was the forgivable PPP loan. At the time a small business was eligible for one of the two but not both. This was actually a relief to many accountants who at the time had already seen their annual busy season turned upside down due to the global pandemic and who were quickly doing their best to digest the intricacies and muddiness of the new legislation with its daily updates and guidance from the Treasury, Department of Labor and the IRS. Interpreting this massive emergency legislation and educating clients was an insurmountable task during a disrupted tax season. Many accounting firms have gone above and beyond their expected duties and served their clients well.

With the passing of the Consolidated Appropriations Act in December of 2020 the ERC credit was expanded and extended through Q2 2021. Businesses could now receive BOTH the ERC credit and the forgivable PPP funds provided they met the qualifications and requirements and had taken both into consideration in calculating their eligible credit. The ERC credit was expanded to 70% of qualified wages with a new max of $7,000 per employee per quarter with an opportunity to receive the credit in advance. Many accountants, overwhelmed with meeting current demands while shut down, guiding clients through the nuanced and changing PPP loan forgiveness and working with banks to ensure forgiveness for their clients either did not realize the change had occurred or decided to put the ERC on the back burner until after tax season. The American Rescue Plan Act passed on March 10, 2021 extended the credit through the end of 2021. It also made a slight change in presenting an alternative quarter vs prior quarter comparison calculation to meet the 20% decline requirement. Many accountants captured the credit for their businesses and clients. MANY DID NOT.

As the mandate ended in March the eligible funds were no longer available to my company being that we are both an essential business and had not been hit as hard as other businesses. I did however have it on my calendar to revisit the ERC in September to ensure there weren't any updates to the law and that I had not missed something earlier in my analysis. I did find that due to certain circumstances our business may qualify for the credit in Q4. I started planning and preparing to capture the funds at the end of Q4. In my preparation I started asking around to see what other businesses were doing and what CPAs were recommending to their clients. To my surprise many CPAs still did not understand the credit, hadn't looked into it for their clients and were still busy filing returns that had been extended due to the disruption earlier in the year. Earlier this month (November) I attended my annual tax seminar to fulfill my required Continuing Professional Education. I was hoping ERC would be presented. I was not disappointed. It was the hot topic. I was encouraged that I had done the right thing for my business in claiming the ERC and that I was not crazy in my extensive due diligence in guaranteeing eligibility and determining qualified wages to ensure an accurate calculation of the credit. The last thing I wanted was to subject my business to audit risk or risk of fraudulent activity given the size of the credit. I was also interested in finding out what my peers' opinions were and if there was something I had missed in my analysis. Again to my surprise many CPAs still did not understand the credit and therefore had not gotten the money for their clients nor had even presented the credit to their clients. I heard things like "most of my clients received the PPP" or "What's the ERC?" or "hmmm...I should look into this for my clients." The final confirmation that I needed to do something was during a meeting with a CPA friend. I asked him "so what do you think about this ERC? Pretty big deal huh." His response was "I don't know much about it."

I'm determined to help other small businesses in the same way I've helped the small business for which I serve as CFO. Small businesses are what make our economy run and provide jobs. Small business owners work extremely hard and take huge risks. Some just to barely make ends meet, pay their bills and put food on their tables. These owners not only put in long hours for themselves but also for their employees and their families. Many businesses are currently struggling and are days or months away form going out of business. Many have already had to shut their doors. As things are starting to open up again and the economy is beginning to get back to normal, I want to help businesses get back on track. I want to help give those business owners the much needed funds to keep going. I want to reward those businesses that have worked extra hard to survive the pandemic and endured great losses. I want to help mitigate the losses for those businesses that had to close. If you are one of those many small businesses, I have good news. I'm here to help.

The Infrastructure Investment and Jobs Act was passed on November 6, 2021 and the ERC was terminated early for periods after September 30. I'm concerned that there may be further legislation that would end the ERC funding all together.

Sincerely,

Joel Eisleben, CPA

Starting a Business This Summer? Here’s Five Tax Tips

New business owners may find the following five tax tips helpful:
1. Business Structure.  An early choice to make is to decide on the type of structure for the business. The most common types are sole proprietor, partnership and corporation. The type of business chosen will determine which tax forms to file.
2. Business Taxes. There are four general types of business taxes. They are income tax, self-employment tax, employment tax and excise tax. In most cases, the types of tax a business pays depends on the type of business structure set up. 
3. Employer Identification Number (EIN).  Generally, businesses may need to get an EIN for federal tax purposes. Search “EIN” on IRS.gov to find out if the number is necessary. If needed, it’s easy to apply for it online.
4. Accounting Method.  An accounting method is a set of rules used to determine when to report income and expenses. Taxpayers must use a consistent method. The two most common are the cash and accrual methods:
a. Under the cash method, taxpayers normally report income and deduct expenses in the year that they receive or pay them.
b. Under the accrual method, taxpayers generally report income and deduct expenses in the year that they earn or incur them. This is true even if they get the income or pay the expense in a later year.
Get all the basics of starting a business on IRS.gov at the Small Business and Self-Employed Tax Center.

Eight Tips to Protect Taxpayers from Identity Theft

Identity theft happens when someone steals personal information for financial gain. Tax-related identity theft happens when someone uses another person’s stolen Social Security number (SSN) or Employer Identification Number (EIN) to file a tax return to obtain a fraudulent refund.
Many people first find out they are victims of identity theft when they submit their tax returns. That’s because the IRS lets them know someone else already used their SSN to file.
The IRS continues to work hard to stop identity theft with a strategy of prevention, detection and victim assistance. So far, the agency has stopped millions of dollars from getting into the hands of thieves.
Check out these eight tips on how to protect against identity theft:
1. Taxes. Security. Together. The IRS, the states and the tax industry need everyone’s help. The IRS launched The Taxes. Security. Together. awareness campaign in 2015 to inform people about ways to protect their personal, tax and financial data. 
2. Protect Personal and Financial Records. Taxpayers should not carry their Social Security card in their wallet or purse. They should only provide their Social Security number if it’s necessary. Protect personal information at home and protect personal computers with anti-spam and anti-virus software. Routinely change passwords for online accounts.
3. Don’t Fall for Scams.  Criminals often try to impersonate banks, credit card companies and even the IRS hoping to steal personal data. Learn to recognize and avoid those fake communications. Also, the IRS will not call a taxpayer threatening a lawsuit, arrest or to demand immediate payment. Beware of threatening phone calls from someone claiming to be from the IRS.
4. Report Tax-Related ID Theft. Here’s what taxpayers should do if they cannot e-file their return because someone already filed using their SSN:

• File a tax return by paper and pay any taxes owed.
• File an IRS Form 14039, Identity Theft Affidavit. Print the form and mail or fax it according to the instructions. Include it with the paper tax return and/or attach a police report describing the theft if available.
• File a report with the Federal Trade Commission using the FTC Complaint Assistant.
• Contact Social Security Administration at www.ssa.gov and type in “identity theft” in the search box.
• Contact financial institutions to report the alleged identity theft.   
• Contact one of the three credit bureaus so they can place a fraud alert or credit freeze on the affected account.
• Check with the applicable state tax agency to see if there are additional steps to take at the state level.

5. IRS Letters. If the IRS identifies a suspicious tax return with a taxpayer’s stolen SSN, that taxpayer may receive a letter asking them verify their identity by calling a special number or visiting an IRS Taxpayer Assistance Center.
6. IP PIN. If a taxpayer is a confirmed ID theft victim, the IRS may issue them an IP PIN. The IP PIN is a unique six-digit number that the taxpayer uses to e-file their tax return. Each year, they will receive an IRS letter with a new IP PIN.
7. Report Suspicious Activity. If taxpayers suspect or know of an individual or business that is committing tax fraud, they can visit IRS.gov and follow the chart on How to Report Suspected Tax Fraud Activity.
8. Service Options. Information about tax-related identity theft is available online. The IRS has a special section on IRS.gov devoted to identity theft and information for victims to obtain assistance.
For more on this Topic, see the Taxpayer Guide to Identity Theft.

Avoid scams. The IRS does not initiate contact using social media or text message. The first contact normally comes in the mail. Those wondering if they owe money to the IRS can view their tax account information on IRS.gov to find out.