Skip to main content

Encouraging QCDs (Qualified Charitable Distributions) — Church and NFP Actions

By

Encouraging QCDs (Qualified Charitable Distributions) — Church and NFP Actions

Since January 1, 2018, generous supporters at least 70½ years old have enjoyed a new means of giving. No longer should they find themselves withdrawing funds from their Individual Retirement Accounts (and paying tax) only to make charitable contributions that have no tax deduction benefit.

To recall, these donors can have their IRA companies withdraw from their retirement investments, sending the distributions directly to the charities of their choice. They cannot deduct the amounts as tax write-offs, but neither do they owe tax on the distributions. These distributions also satisfy IRS rules for annual Required Minimum Distributions (RMDs) that are mandatory beginning at age 73.

How can your church or NFP assist these donors?

1.      Educate. Make sure your supporters understand QCD rules and processes. Encourage them to ask their IRA investment advisors for clear instructions to arrange direct IRA-to-charity funds transfers.

2.      Document. Donors must accurately report the IRA distributions that are QCDs on their Forms 1040. Your organization’s annual giving statements can help. While QCD gifts cannot be deducted as charitable contributions on your donors’ tax returns, contributors still must obtain written proof of them. As CPAs, we see some annual reports from churches and NFPs that are confusing. Record all their gifts on your statements, including QCDs. It’s up to the donors to know the rules. But you can help by providing annotations that list the source. For example, “from [Fidelity] IRA account of [Jane Doe].” If the donor is married, it is important to note which spouse’s IRA made the transfer.

Much more could be said about QCDs, but we’ll share just one more fact: the 2025 limit per spouse is $108,000. Inflation adjustments will result in greater future years’ limits.




Comments

Post a Comment

Popular posts from this blog

Church Car Purchase for Pastor

By
Question: A church would like to purchase a car for the pastor's use. What is the best method to accomplish this goal? Should the car be titled in the pastor's name? What will be the tax consequences of this arrangement? Answer: The church has two main alternatives for this purchase:  Title the car in the pastor's name and reimburse him for business expenses Title it in the church's name and treat personal use as taxable compensation There are fewer immediate tax consequences for the latter. Since both are viable options, we will discuss both situations in this post. If the church chooses to give the car to the pastor and register it in his name, he is free to use it for whatever personal use he desires with no tax consequences. However, the fair value of the car is taxable as compensation at the time it is given to the pastor. Internal Revenue Code section 102(c) clearly states that gifts given to employees by their employers are taxable compensation. The...
2 comments
Read more

Can Form 4361 be filed after the deadline?

By
Question:   Is it possible to opt out of Social Security after the 2-year deadline? Answer:  Unlike other employees, a licensed or ordained minister has the option to opt out of Social Security and Medicare (FICA). If a minister wants to opt out they must file Form 4361 by the tax deadline including extension, in the second year in which they have received ministerial income of $400 or more. This election is final, and the minister cannot opt back into FICA taxes.  At MinistryCPA, we have received questions from ministers who have exceeded the two year deadline and desire to opt-out. There have been several court cases which provide guidance in answering this question. Some have argued that the minister was unaware of the deadline, had mistakenly believed they had filed a timely election, were given incorrect advice by an IRS employee, or their opposition to participate in Social Security and Medicare did not arise until after the 2-year deadline had passed. In each of th...
Post a Comment
Read more

Rental of a Church Parsonage to a Non-Minister

By
Question: A church owns a parsonage, but the pastor does not use it as he owns his own home. The church rents the parsonage to a tenant other than a minister or employee of the church. Will the church be responsible for paying income tax on these monies as Unrelated Business Income (filing a Form 990-T) even if the money is used to carry on the business of the church? Answer: Whether the money is used for church purposes is irrelevant.  IRS Publication 598  states: "If an exempt organization regularly carries on a trade or business not substantially related to its exempt purpose, except that it provides funds to carry out that purpose, the organization is subject to tax on its income from that unrelated trade or business." Fortunately, in the case of rental income from real property, such income is "excluded in computing unrelated business taxable income" (Publication 598). Caution: see content below regarding debt-financed property.  However, a second concern not a...
Post a Comment
Read more