QCD vs Deduction

[josephny]

[Topic is now in Personal Finance (Not Investing) - mod mkc]

I'm trying to understand the difference on tax liability between a QCD and an itemized chartitable deduction.

My wife (65) inherited an IRA from her aunt when her aunt passed away.

We were required to take RMD from that IRA for the since 2022.

We thought maybe in 2024 we should make a QCD to a good charity. So I googled the rules and I see that my wife would need to be 70.5 years old (which she isn't) for it to qualify.

Then I got to wondering what exactly is the difference if we made an IRA QCD vs. a simple charitable contribution?

We itemize our deductions, so I believe that every dollar we donate is a dollar less of taxable income (correct?).

Would a QCD be any different?

Thanks.

[chemocean]

Even though you can make QCDs from an inherited IRA, the beneficiary needs to be at least 70.5 on the day you request the QCD.

Otherwise, the withdrawal is a taxable withdrawal, which you could donate, possibly with some tax advantage after your deductions are above the standard deduction.

[jebmke]

I'm trying to understand the difference on tax liability between a QCD and an itemized chartitable deduction.

My wife (65) inherited an IRA from her aunt when her aunt passed away.

We were required to take RMD from that IRA for the since 2022.

We thought maybe in 2024 we should make a QCD to a good charity. So I googled the rules and I see that my wife would need to be 70.5 years old (which she isn't) for it to qualify.

Then I got to wondering what exactly is the difference if we made an IRA QCD vs. a simple charitable contribution?

We itemize our deductions, so I believe that every dollar we donate is a dollar less of taxable income (correct?).

Would a QCD be any different?

Thanks.

In the case of the QCD, the amount is excluded from AGI so for any calculations that involve AGI, or MAGI, it is not included.

Some other nuances, QCD has a dollar cap. Deductions have a % of AGI cap (although excess can be carried over).

[sycamore]

I'm trying to understand the difference on tax liability between a QCD and an itemized chartitable deduction.

My wife (65) inherited an IRA from her aunt when her aunt passed away.

We were required to take RMD from that IRA for the since 2022.

We thought maybe in 2024 we should make a QCD to a good charity. So I googled the rules and I see that my wife would need to be 70.5 years old (which she isn't) for it to qualify.

Then I got to wondering what exactly is the difference if we made an IRA QCD vs. a simple charitable contribution?

We itemize our deductions, so I believe that every dollar we donate is a dollar less of taxable income (correct?).

Would a QCD be any different?

Thanks.

Yes, it's different. A QCD is a way to avoid having the QCD amount counting toward your adjusted gross income (and taxable income).

Basically you'll get 1099-R showing there was a distribution, for example for $10000.
And you will remember to tell your tax accountant or tax software that the distribution was a Qualified Charitable Donation. This part is really important because it causes a -$10000 amount to shows up on your tax return that offsets the $10000. And thus you don't get taxed on the distribution.

[prd1982]

Also look at your state income tax form. If your state uses AGI as a starting ooint, a QCD doesn’t count as state income while it does if you give to charity.

[josephny]

Even though you can make QCDs from an inherited IRA, the beneficiary needs to be at least 70.5 on the day you request the QCD.

Otherwise, the withdrawal is a taxable withdrawal, which you could donate, possibly with some tax advantage after your deductions are above the standard deduction.

Thank you for the explanation.

Are they still called QCD if the beneficiary is not at least 70.5 at the time of the contribution?

How is there any difference in the taxation of the contributed amount between an itemized deduction and a QCD (by a beneficiary over 70.5)?

[jebmke]

Even though you can make QCDs from an inherited IRA, the beneficiary needs to be at least 70.5 on the day you request the QCD.

Otherwise, the withdrawal is a taxable withdrawal, which you could donate, possibly with some tax advantage after your deductions are above the standard deduction.

Thank you for the explanation.

Are they still called QCD if the beneficiary is not at least 70.5 at the time of the contribution?

How is there any difference in the taxation of the contributed amount between an itemized deduction and a QCD (by a beneficiary over 70.5)?

No, you can’t do it if not 70.5. It’s just a taxable distribution to you. What you do with the money is up to you.

I think there is a Wiki entry on QCDs. Might be worth reading.

[Silk McCue]

The QCD Wiki.

https://www.bogleheads.org/wiki/Qualifi ... tributions

Cheers

[Alan S.]

I'm trying to understand the difference on tax liability between a QCD and an itemized chartitable deduction.

My wife (65) inherited an IRA from her aunt when her aunt passed away.

We were required to take RMD from that IRA for the since 2022.

We thought maybe in 2024 we should make a QCD to a good charity. So I googled the rules and I see that my wife would need to be 70.5 years old (which she isn't) for it to qualify.

Then I got to wondering what exactly is the difference if we made an IRA QCD vs. a simple charitable contribution?

We itemize our deductions, so I believe that every dollar we donate is a dollar less of taxable income (correct?).

Would a QCD be any different?

Thanks.

A QCD would probably be more beneficial because it reduces AGI as well as taxable income. Itemizing reduces taxable income but not AGI. Higher AGI can in many cases expose more SS income to taxation, reduce any itemized medical deduction, and increase NIIT. Itemized donations are also subject to % limitations based on AGI, but QCDs are not.

In addition, the value of itemizing is limited to the amount these deductions exceed your standard deduction. Therefore, if your itemized deductions only exceed the standard deduction because of your donations, the portion of your donations that bring the total up to the standard deduction amount is not reducing your taxes. The higher standard deductions have greatly reduced the number of people itemizing.

You are correct that QCDs can be done from inherited IRAs, but the beneficiary must have reached 70.5.

[celia]

How is there any difference in the taxation of the contributed amount between an itemized deduction and a QCD (by a beneficiary over 70.5)?

An itemized deduction is worthless unless all your deductions add up to more than the standard deduction. Then you might as well just use the standard deduction.

This choice, therefore, is only available to those who are over 70.5 AND have more deductions than the standard deduction. Doing either option will decrease your Taxable Income the same amount, thus your taxes will be the same either way, unless you are subject to AMT or NIIT (for higher income taxpayers).

[cheese_breath]

QCDs are good if you don't have many other deductions. You can take the standard deduction, and omit the total QCDs amount.

[MarkNYC]

If anyone decides to do a QCD and does not prepare their own tax return, make sure to explain to the tax preparer what happened because the 1099-R will suggest that the IRA distribution is fully taxable and the preparer will not know differently unless you tell them about the QCD.

[BolderBoy]

Another answer to the question is that a QCD (if eligible) is an 'above the line' deduction while a regular charitable contribution is a 'below the line' deduction. "the line" = the AGI line.

[Silk McCue]

Another answer to the question is that a QCD (if eligible) is an 'above the line' deduction while a regular charitable contribution is a 'below the line' deduction. "the line" = the AGI line.

Alan S. addressed that above.

Cheers

[josephny]

Wow! Thank you very much.

So QCDs reduce one's AGI (or MAGI) which is used for calculating or triggering or exceeding thresholds that could affect one's tax liability (AMT, NIIT, state tax calculation, SS taxation, medical expense deduction, IRMAA). Independently of these other impacts, a lower AGI reduces one's taxable income.

Whereas, an itemized charitable deduction reduces one's taxable income (assuming one's itemized deductions exceed the standard deduction by at least the amount that the charitable deduction).

To claim a QCD (for adjustment to AGI) one needs to be >70.5 years old.

Did I get that right?

[jebmke]

Wow! Thank you very much.

So QCDs reduce one's AGI (or MAGI) which is used for calculating or triggering or exceeding thresholds that could affect one's tax liability (AMT, NIIT, state tax calculation, SS taxation, medical expense deduction, IRMAA). Independently of these other impacts, a lower AGI reduces one's taxable income.

Whereas, an itemized charitable deduction reduces one's taxable income (assuming one's itemized deductions exceed the standard deduction by at least the amount that the charitable deduction).

To claim a QCD (for adjustment to AGI) one needs to be >70.5 years old.

Did I get that right?

Yes

[chemocean]

If anyone decides to do a QCD and does not prepare their own tax return, make sure to explain to the tax preparer what happened because the 1099-R will suggest that the IRA distribution is fully taxable and the preparer will not know differently unless you tell them about the QCD.

No matter who prepares your taxes, make sure that the phrase "QCD" shows up where the dots are after "4b taxable amount" (2023 tax return). Otherwise as many posters on this forum have suggested, you will receive a letter from the IRS indicating that you owe taxes on the nontaxable part of your IRA distributions (your QCD distributions).

[Toddo]

No matter who prepares your taxes, make sure that the phrase "QCD" shows up where the dots are after "4b taxable amount" (2023 tax return). Otherwise as many posters on this forum have suggested, you will receive a letter from the IRS indicating that you owe taxes on the nontaxable part of your IRA distributions (your QCD distributions).

You may even if it is there, as we did a few months ago. But having it there probably reduces the probability of getting that notice.

[app1nag]

Wow! Thank you very much.

So QCDs reduce one's AGI (or MAGI) which is used for calculating or triggering or exceeding thresholds that could affect one's tax liability (AMT, NIIT, state tax calculation, SS taxation, medical expense deduction, IRMAA). Independently of these other impacts, a lower AGI reduces one's taxable income.

Whereas, an itemized charitable deduction reduces one's taxable income (assuming one's itemized deductions exceed the standard deduction by at least the amount that the charitable deduction).

To claim a QCD (for adjustment to AGI) one needs to be >70.5 years old.

Did I get that right?

How exactly does QCD lower AGI if you are not taking an RMD?

[toddthebod]

Wow! Thank you very much.

So QCDs reduce one's AGI (or MAGI) which is used for calculating or triggering or exceeding thresholds that could affect one's tax liability (AMT, NIIT, state tax calculation, SS taxation, medical expense deduction, IRMAA). Independently of these other impacts, a lower AGI reduces one's taxable income.

Whereas, an itemized charitable deduction reduces one's taxable income (assuming one's itemized deductions exceed the standard deduction by at least the amount that the charitable deduction).

To claim a QCD (for adjustment to AGI) one needs to be >70.5 years old.

Did I get that right?

How exactly does QCD lower AGI if you are not taking an RMD?

It does not. It reduces your IRA balance though.

[RetiredAL]

How exactly does QCD lower AGI if you are not taking an RMD?

It keeps a QCD $ withdrawal from being included in the AGI.

It may or may not be part of a RMD requirement. I did QCD's before I hit my RMD age of 72.