QCD for 72 year old

Submitted by Robert Wright on Tue, 2018-08-14 17:38

Assume I’m 75 years old and take a QCD in 2018 from my TIRA that is payable to my favorite charity.
The TIRA is 100% pre-tax.

The check is payable to the charity; it’s mailed to my residence and I deliver it to the charity and receive a receipt recognizing the contribution as a 2018 deductible contribution from me.

In February 2019 I receive a 1099-R from my TIRA custodian for the amount of the QCD.
The distribution code is: 7 – Normal Distribution.

How, exactly, does my tax preparer account for this QCD on my 1040 tax return so that the distribution isn’t added to my AGI?

Thank you for your help.

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Permalink Submitted by David Mertz on Tue, 2018-08-14 17:47

The tax preparer includes the full gross distribution amount on 2018 Form 1040 line 4a, excludes the QCD amount from the taxable amount on line 4b and (presumably, since the draft instructions for 2018 Form 1040 are not yet available) includes the notation “QCD” next to line 4b. This is the same as would have been done on line 15 of 2017 Form 1040 for a QCD made in 2017.
All tax preparation software I’m aware of does this, when the user enters a Form 1099-R for a regular distribution by someone age 70½ or older, by asking the amount of any of the distribution that was QCD and limiting the QCD amount to $100,000.

Permalink Submitted by William Tuttle on Tue, 2018-08-14 17:54

If you are not aware of it and what the heck DMx is talking about. The IRS has released draft tax forms for 2018 that are significantly different than 2017.
There is now a much smaller Form 1040, but six (6) new Schedules (1-6).
What was 2017 Form 1040 Line 15a and b, is now 2018 Form 1040 Line 4a and b.

Permalink Submitted by David Mertz on Tue, 2018-08-14 18:01

Here’s the draft 2018 Form 1040 (recently changed slightly from the previous draft and could be subject to more changes before it is finalized): https://www.irs.gov/pub/irs-dft/f1040–dft.pdf

Permalink Submitted by Alan - IRA critic on Tue, 2018-08-14 18:29

Once the QCD was made permanent, I expected that the IRS would publish a unique distribution code for a QCD distribution, which would have required a separate 1099R as well. This has yet to happen. A unique Box 7 coding would have eliminated most of the tax fraud that occurs involving QCDs. Perhaps the financial industry lobbied against this, citing the increase in check writing QCDs by IRA owners as an impediment, or some other reason.
While the OP had no IRA basis, for IRA owners that have basis, and are doing a QCD as part of their RMD, the forms generated should be checked because the QCD is NOT to be included in line 7 of Form 8606 since a QCD by definition must be made with 100% pre tax dollars. Therefore, the taxpayer should end up with an 8606 that calculates the taxable portion of the non QCD part of the annual distributions, but the QCD portion will not be included. Therefore, the Form 1040 IRA distribution line will end up being the sum of the 8606 taxable amount and the non QCD part not included on the 8606.

Permalink Submitted by David Mertz on Tue, 2018-08-14 19:24

The draft instructions for 2018 Form 1099-R do not add any new QCD code. Even if the IRS adds a code to indicate a QCD, which I think is unlikely, it would only indicate that the distribution was made after age 70½ and that the distribution was paid directly to a charity. It cannot indicate that the distribution actually qualifies as a QCD. The payer does not necessarily know the amounts of any other potential QCDs made by the IRA owner that year, nor can the payer know if the IRA owner has sufficient pre-tax money in traditional IRAs for the entire amount to be QCD, nor is a payer going to get involved in determining that the charity is a qualified charity, so I think that adding a code would only increase confusion.