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.