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Easy to Miss

Chuck Staley  |  Aug 17, 2023

“WHERE’S THE QUALIFIED charitable distribution on Mom’s tax return?” Mom had never before executed a qualified charitable distribution, or QCD. Her tax return was 41 pages, and we weren’t sure where to find it.

There was a long pause. “I forgot your mom had made QCDs as I prepared her return,” allowed her tax preparer. “I’ll need to recalculate her taxes.”

A QCD can be a tax-efficient way to donate money for those who are charitably inclined—but only if it’s correctly documented on your tax return. Unfortunately, for busy tax preparers, the QCD seems to be an easy deduction to miss, resulting in a needless overpayment of taxes.

In fact, over the past four years, Mom has had two separate tax preparers miss her QCDs when they prepared her taxes for the first time. In both cases, she explicitly documented the QCDs in writing and provided documentation from the charity, but the QCDs were still missed.

To make matters worse, Mom’s adjusted gross income was right on the cusp of the threshold that determines Medicare’s income-related monthly adjustment amount, otherwise known as IRMAA. A failure to correctly document her QCDs could have resulted not only in an overpayment of income taxes, but also a substantial increase in her Medicare premiums. Getting Mom’s annual QCD right is a big deal: It typically saves her about $3,500 a year in taxes.

A QCD is a direct distribution of money by an IRA custodian—think Fidelity Investments, Charles Schwab and Vanguard Group—to a qualified charity. Anyone over age 70½ is eligible to make a QCD. To do so, you can call your IRA custodian, and it’ll write a check against your IRA that’s payable to the charity. It’s even simpler for Mom. She has a checkbook for her IRA, so she can execute a QCD by simply writing a check to the qualified charity.

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