How to report RMD w/QCD on form 1040?

[AZ-Tax]

Got off the phone from Schwab retirements services. He tells me Schwab will issue a 1099-R with the same amounts in box 1 & 2 and box "taxable amount not determined" checked. Am I correct that if the TP did a $40K RMD with $20K of the $40K going to a Qualified Charity as a distribution directly from Schwab, $40K would go on 1040 line 15a and $20k would go on line 15b?

[kathyc2]

Got off the phone from Schwab retirements services. He tells me Schwab will issue a 1099-R with the same amounts in box 1 & 2 and box "taxable amount not determined" checked. Am I correct that if the TP did a $40K RMD with $20K of the $40K going to a Qualified Charity as a distribution directly from Schwab, $40K would go on 1040 line 15a and $20k would go on line 15b?

Correct. "QCD" also needs to be printed on line 15. Your software should have a line on the 1099-R entry form to indicate how much went to QCD so that it will print.

[taxea]

I would also verify that the funds went directly to the charity and not issued to the TP to give to the charity.

[JohnH]

Has anyone seen very many situations in which the QCD actually benefitted the client very much? Most of the ones I have handled were just minor tweaks to the final result. Those who used the QCD were itemizers who could just have easily used the deduction on Schedule A. So the only benefit was a tiny decrease in the Medical deduction haircut (if they had medical expenses high enough to matter in the first place). Or there might be a situation where the AGI reduction helps reduce taxable SocSec benefits if they fall into that narrow range of income.

I suppose there are a few situations in which it's beneficial, but they seem to be the exception rather than the rule. But I guess if people think they are getting a special tax break they will be motivated to do something they might not otherwise do.

Each year there has always been a lot of hand wringing over the reinstatement of the QCD, when in fact it doesn't significantly affect that many taxpayers IMO. Maybe making it permanent will do away with some of the (mostly) wasted time & effort spent talking with people about what might happen with this in the 4th quarter of each year.

[AZ-Tax]

My client does not itemize

I don't think I would suggest to any client of mine who itemizes but my client does not itemize.

[Snaggletooth]

Those who used the QCD were itemizers who could just have easily used the deduction on Schedule A. So the only benefit was a tiny decrease in the Medical deduction haircut (if they had medical expenses high enough to matter in the first place). Or there might be a situation where the AGI reduction helps reduce taxable SocSec benefits if they fall into that narrow range of income.

John, I understand what you are saying but as a matter of practice, any time I can trade an itemized deduction for an above-the-line deduction, I will do so. In particular, most people who use the QCD are older and wealthy. One overlooked factor in the creation of wealth is not simply a large income but also aversion to debt. And if they have any debt at all it is above-the-line business use rather than burdening their home with a mortgage. Most people in this class are taxed at 85% of their SS if they are receiving it.

Some of the strategy may take on bigger effect if they live in a no-tax state instead. As incomes rise, the difference between state income taxes and sales taxes rises precipitously, so 80-90% of such NC taxpayers itemize as opposed to maybe 30% of such Tennesseans. And with the itemization also brings the erosion of itemized deductions at high income levels.

If some clients take the advantage of tax planning, we will routinely make prospective decisions to trade in itemized deductions for pre-AGI deductions. Particularly if decisions are made in advance of the event (instead of after the fact), there are surprising opportunities to do so.

[kathyc2]

I suppose there are a few situations in which it's beneficial, but they seem to be the exception rather than the rule.

The only situation I can think of where it would have NO benefit would be: income is high enough so it does not change the taxability of SS benefits, AND no benefit to change the floor the medical expenses, AND itemized deductions without the contribution are already over the standard deduction AND state does not allow charitable itemized as a deduction to state income but they do accept the lower AGI in calculating state tax.

That said, like all tax breaks, the extent to which it is beneficial depends on each clients personal situation.

[origun]

NIIT and phaseouts

I may be wrong, don't have any forms in front of me and haven't done a tax return since April 15, 2015...but won't it affect the NIIT threshhold and the phaseout level for exemptions and itemized deductions? I believe those are affected by AGI which would be larger of QCD am't had to be added in on line15. Most of us don't have a lot of clients affected by those phaseouts but they aren't THAT rare. And for people with less income, it could affect taxability of SS income.

[Lion]

And, for states like CT that start with federal AGI, a QCD saves state tax also but an itemized deduction does not.