When using the QCD strategy, the donor does not receive a deduction for the charitable gift. Instead, the QCD amount is excluded from taxable income.
The QCD strategy shifts the tax benefit upstream on the tax return, allowing for additional benefits beyond a standard charitable deduction.
QCDs can be especially beneficial for taxpayers who do not itemize deductions as they may not receive a tax benefit for a charitable gift if not using the QCD strategy.
Even if you itemize deductions, the QCD strategy may provide additional tax benefits. Because an IRA distribution made through a QCD is excluded from income, this strategy could potentially reduce income that affects Medicare surtax, Medicare premiums surcharges and Social Security taxation.
To qualify as a QCD, the charitable gift must be made directly from the IRA custodian or trustee to a qualifying charity. Private foundations and donor
-advised funds do not qualify as QCD recipients.
Most IRAs qualify for QCDs; however, not all tax-deferred employer plans qualify. If you are still contributing to your IRA, your ability to make a QCD may be affected. Make sure you communicate any QCDs to your CPA to ensure proper tax reporting for the distributions.
