There is a oft-times overlooked fundraising opportunity that your institution should be aware of: The “IRA Qualified Charitable Deduction” where certain donors may transfer up to $105,000 to your organization without paying tax on that transfer/contribution.
The PATH Act of 2015 made the “IRA Charitable Rollover” a permanent law. This can be very beneficial to your institution and some major donors. Recently the IRS – in IRS Newswire, November 14, 2024 – gave us all a heads up regarding this opportunity.
In the words of the IRS…
Give more, tax-free: Eligible IRA owners can donate up to $105,000 to charity in 2024 WASHINGTON — The Internal Revenue Service reminds individual retirement arrangement (IRA) owners age 70½ and older that they can make up to $105,000 in tax-free charitable donations during 2024 through qualified charitable distributions. That's up from $100,000 in past years. For those age 73 or older, qualified charitable distributions (QCDs) also count toward the year's required minimum distribution (RMD). Generally, IRA distributions are taxable, but QCDs remain tax-free if sent directly to a qualified charity by the trustee. To make a QCD for 2024, IRA owners should contact their IRA trustee soon to ensure the transaction completes by year-end. Each eligible IRA owner can exclude up to $105,000 in QCDs from taxable income. Married couples, if both meet qualifications and have separate IRAs, can donate up to $210,000 combined. QCDs don't require itemizing deductions. For those planning ahead, starting this year, the QCD limit is subject to annual adjustment, based on inflation. For that reason, the annual QCD limit will rise to $108,000 in 2025.
So what should a savvy institution do now?
COMMUNICATE WITH DONORS!
First, you should make sure that your Development/Fundraising Team is aware of this opportunity.
Then, check your donor records for taxpayers who are age 70.5 or older and consider ways to make them aware that they could be allowed to make tax-free distributions to a charity from an Individual Retirement Account (IRA) of up to $105,000 this year – married couples might give up to $210,000!
In your correspondences, be sure to inform these donors (and potential donors!) that:
The distribution may be any amount – it does not HAVE to be $105,000
These QCD’s are not taxable – like most IRA distributions
For taxpayers older than 73 years old, the QCD can be used to count against their annual required minimum distribution (RMD)
To count in 2024, the QCD needs to be made by the December 31.
If they decide not to take advantage of this opportunity for giving in 2024, the 2025 amount increases to $108,000
QCDs should be reported on the taxpayer’s annual tax return. Donor’s IRA trustees will issue Form 1099-R in early 2025. This will be a donor’s documentation for their IRA distributions, including QCD’s. (Make sure to keep these forms!)
The full amount of any IRA distribution goes on Line 4a of Form 1040, U.S. Individual Income Tax Return, or Form 1040-SR, U.S. Tax Return for Seniors. If the only amount for the year is a donor’s QCD, they can enter “0” on Line 4b (it is best to make a note of this on the form).
Donors must obtain a contemporaneous written acknowledgement from your institution (showing the contribution date, amount, and confirmation that no goods or services were received).
IRS Publication 526, Charitable Contributions, and Publication 590-B Distributions from Individual Retirement Arrangements (IRAs) are great resources that can be found at www.irs.gov
Written by David C. Moja, CPA www.mojacompany.com The information provided herein presents general information and should not be relied on as accounting, tax, or legal advice when analyzing and resolving a specific tax issue. If you have specific questions regarding a particular fact situation, please consult with competent accounting, tax, and/or legal counsel about the facts and laws that apply.
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