Last year, taxpayers could have distributions from their IRAs paid directly to charities. These distributions “counted” as part of the taxpayer’s required minimum distribution (RMD) but they were not taxable distributions so the taxpayer received a benefit and the charities received a benefit. If you were one of the people who made a qualified charitable distribution (QCD), you need to know how to account for the distribution on your 2011 tax return.
The first thing to note is that the 1099 that you receive from the IRA’s custodian will report the full distribution taken from the IRA. There is no paperwork or form that reports that part of your distribution was sent to a charity and is therefore not taxable. You will need to track that information yourself.
To properly account for the distribution, you will need to report the full amount of the IRA distribution on Line 15a of Form 1040. You will then need to subtract the total of all the distributions made to the charities from this amount and enter the remaining balance on Line 15b of Form 1040. You must also enter the code “QCD” on Line 15b. You should keep proof of the amounts paid to the charity in case you are ever audited.
Finally, because you were not taxed on the distribution that was made directly to the charity, you cannot claim the contribution as a charitable deduction.
The ability to make a contribution to a charity and still have the amount “count” towards your RMD ended in 2011 but there is at least a small chance that it could be turned back on again for 2012. However, if this happens, it will likely occur at the end of the year and that doesn’t leave much time to plan.