If a large charitable deduction is the item that allows the client to itemize, then it is still better to use the QCD, have the transfer excluded from income and then use the higher standard deduction. The tax will come out lower that way. If the client qualifies for itemizing without the charitable deduction, then still do the QCD. In that case, the IRA funds transferred through the QCD are still excluded from income and the clients can take the itemized deductions too, again resulting in a lower tax bill. By doing that, certain itemized deductions like medical expenses will actually be higher since the AGI will be lower. That will allow more medical expenses to be deducted. That’s especially important for 2019 since the threshold for deducting medical expenses increases to 10% of AGI (from 7.5% in 2018).

For 2019, don’t let clients miss the boat. Have them hold off on any RMDs until they do their QCDs. That’s why this must be addressed as early as possible in the year. Even though most clients tend to take their RMDs nearer to year-end, remind them anyway to make sure they don’t lose any tax benefit.

Advisors should remind tax preparers when QCDs are made since they will not be coded as such on the 1099-R being used to prepare the tax return. The 1099-R reporting will look the same as any other normal IRA distribution and can easily be missed by the accountant.

One more thing … only because I actually get this question from CPAs. Regardless of what our clients may think, gifts to children do not qualify as charity, so they also don’t qualify for QCDs.

2. Enter Roth IRA Contributions

Trick question: Where do Roth IRA contributions go on the tax return? Nowhere.

Roth IRA contributions are invisible on the tax return. So how can they be entered and why should they be entered?

By “entered” I mean entering the Roth contribution amount with the regular tax items being input into the tax program. OK, so why would anyone do that, when you won’t see the actual contribution appear on the tax return?

There are three reasons to do this:

A) Qualification