Qualified Charitable Distribution in 2022? Don’t Forget to Report It

Clete Albitz, CFA, CFP®

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One growing gifting strategy that many investors have utilized is the qualified charitable distribution (QCD). A QCD is a distribution from an IRA for those over the age of 70 ½ issued directly to a charitable organization. The organization receives the full gift and the donor’s taxable income is reduced by the amount of the gift. Furthermore, if you are required to take required minimum distributions (RMDs) from your IRA, the QCD will count toward your RMD.

For those eligible, a QCD is a better gifting strategy than simply making a charitable deduction. This is because a QCD will lower taxable income, which often provides greater income tax savings compared to making a cash gift and claiming an income tax deduction. Since the standard deduction was increased in 2018, it is estimated that fewer than 15% of taxpayers itemize their taxes. If you don’t itemize, there will not likely be any tax benefit from your charitable donation making the QCD even more beneficial. The current QCD limit is $100,000 and is scheduled to gradually increase with inflation in future years.

If you made a QCD in 2022, you may be wondering why it is not shown your 1099-R. Unfortunately, despite being made permanent by Congress in 2016, tax documents do not have a line item for QCDs to be reported to the IRS. Only the total distribution is reported in Box 1 of the 1099-R without any delineation of the amount that was sent to the qualified charity. Due to this, it is likely that many people will not properly report their QCDs, ultimately leading to paying more tax than owed. If you made a QCD in 2022, you’ll want to keep records from the charity noting the distribution and be sure to notify your accountant.

If you are subject to RMDs and donate to charitable organizations, it is typically a great strategy to utilize the QCD for your donations. Just remember that simply reporting what is on the 1099-R is not enough and that you need to specifically note the amount of the QCD. Please get in touch if you are interested in utilizing this gifting strategy or with any specific questions.

Clete Albitz

CFA, CFP®

Clete Albitz joined Albitz/Miloe & Associates, Inc. in 2005 and is dedicated to serving clients, specializing in investment portfolio management and retirement income planning. Clete is a CFA® charterholder, CERTIFIED FINANCIAL PLANNER™ (CFP®), and graduated with a degree in Economics from the University of California, San Diego. He enjoys playing baseball, basketball, and coaching Little League. Clete resides in the South Bay with his wife and three children.

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