QCDs and Me

Chris Cagle

SOME 90% OF TAXPAYERS claim the standard deduction on their tax return. Thanks to 2017’s Tax Cuts and Jobs Act, today’s standard deduction is larger than the itemized deductions of most taxpayers, including those who previously itemized.

But my wife and I are among the 10% of taxpayers who have continued to itemize, including each of the five years since I retired in 2018. Despite the much higher standard deduction for married couples over age 65, we still had enough itemized deductions to make it worthwhile.

But that changed in 2023.

Prior to 2023, about half of our itemized deductions were charitable contributions. When I turned age 70½ last year, I became eligible to make qualified charitable distributions (QCDs) from my IRA, and started going that route instead of donating directly to charitable organizations.

If you aren’t familiar with QCDs, they’re tax-free withdrawals from a traditional or Roth IRA—401(k)s don’t qualify—that are sent directly from the IRA custodian to a qualified 501(c)(3) charity. Not only is the withdrawal not taxed, but you can use it to help meet your required minimum distributions, which now kick in at age 73.

I’ve been looking forward to doing the taxes this year to see how my QCDs would affect them. I know that sounds a little ridiculous. Who likes to do their taxes? Maybe only personal finance nerds who write for HumbleDollar.

Since I use Intuit’s TurboTax software to do our taxes, all I needed to know to get started was our income, the tax withheld and an accounting of all my QCDs. Because I have all my retirement accounts consolidated at Fidelity Investments, I get one statement detailing all my IRA distributions and withholding information.

When I’ve itemized in the past, I had to gather a lot of additional documentation on our deductions, including charitable contributions, property taxes, medical expenses and so forth. Once I had all the information, I’d enter it into TurboTax. But since we’ll be taking the standard deduction in 2023, I didn’t need to compile all that information to get started on our taxes.

Our 2023 income came mostly from taxable IRA distributions. A close second was our Social Security benefits, 85% of which is taxable at our income level. We also had a small amount of interest from a savings account, plus some business income from book sales and a speaking engagement.

As you probably know, taxable income all starts with your adjusted gross income (AGI). According to the IRS, AGI “is defined as total income minus deductions or ‘adjustments’ to income that you are entitled to take.” But things get a little tricky when it comes to accounting for QCDs.

Your custodian reports QCDs and other distributions from an IRA on IRS Form 1099-R. They’re included with taxable distributions and reported on Lines 1 and 2 of Form 1099-R.

But there’s a problem: Nowhere on the 1099-R is the QCD amount reported. You also won’t find a box or a code on Form 1040. You’ll have to do this AGI adjustment yourself. Fortunately, it’s easy. You just have to do some simple math and fill out two fields on Form 1040.

Here’s a simple example: If you withdrew $25,000 from your IRA, of which $5,000 went directly to charity using a QCD, you’d take the gross distribution listed on Form 1099-R’s Box 1 and enter it on Line 4a of Form 1040 (IRA distributions). Then you’d subtract the $5,000 QCD and enter $20,000 on Line 4b (taxable amount). If the entire distribution is a QCD, you would enter $0 on line 4b. If you’re using a paper form, you can write “QCD” next to line 4b. For more details, see the instructions for 2023’s Form 1040.

Since I use TurboTax software, I didn’t have to worry about this. I was pleasantly surprised that TurboTax asked about QCDs and did the calculation for me. All I had to do was enter the total of my QCDs for the year.

If someone does your taxes for you, and you give them your 1099s and charitable contribution statements, the preparer won’t automatically know about your QCDs. You’ll need to tell the preparer, and include the amount, so it gets reported correctly.

Keep in mind that your only proof of the QCDs is a statement from a qualified charity acknowledging that it received the IRA funds. If you’re ever questioned or audited, you’ll need this, along with your financial institution’s records of the QCD amounts.

Once I entered all the information, TurboTax calculated our AGI by reducing our gross income by the total amount of my QCDs. The software treats it as a “pre-tax deduction,” like a contribution to a traditional IRA. Next, the software calculated our taxable income by reducing our AGI by the standard deduction amount for a married couple over age 65 filing jointly, which for 2023 is $30,700.

The resulting taxable income put us in the 22% marginal tax bracket, but our effective tax rate was 8.1% because most of our income was taxed at a lower rate than our marginal rate. Did doing QCDs help or hurt our overall tax position? The short answer: It helped. The longer answer requires some qualification.

Because we already realized some tax benefits from our itemized charitable contributions, it didn’t help as much as if we’d previously been taking the standard deduction and started making QCDs for the first time.

By using QCDs for the 2023 tax year, we reduced our overall tax liability, compared to what it would have been if we’d itemized our charitable contributions. The reason is that the total of our standard deduction and the qualified charitable distributions (QCDs) exceeded the amount of our itemized deductions, further reducing our taxable income.

To estimate our tax savings, I compared our 2023 standard deduction, combined with my QCDs, to our 2022 itemized deductions, and then calculated the potential tax savings. Since we’re in the 22% marginal tax bracket and QCDs reduced our taxable income by an additional 7.6%, our additional tax savings as a percentage of our taxable income was 1.7% (0.22 x 0.076 = 0.017), a significant but not substantial tax savings.

From this, we can conclude that QCDs may be beneficial in four basic scenarios:

Scenario No. 1: If you itemize your deductions and charitable contributions are a significant part of the total, it’s likely that making QCDs when you’re eligible will result in a slightly lower federal income tax bill.

Scenario No. 2: If you make charitable contributions but weren’t previously able to itemize, making QCDs may lower your taxes even more because you’ll still be able to take the standard deduction, plus you’ll reduce your taxable income by the amount of your QCDs.

Scenario No. 3: If you haven’t been making charitable contributions but would like to start once you reach age 70½, QCDs are a great way to go because your IRA distributions are tax-free whether you’re currently itemizing or not.

Scenario No. 4: If you use QCDs to help satisfy your annual required minimum distributions, you’ll reduce your taxable income by the amount of your QCD.

QCDs helped my wife and me, though the tax savings would have been greater if we hadn’t previously been itemizing our charitable contributions. And they’ll probably help you, too, no matter which of the above scenarios you’re in.

Chris Cagle retired from his career as an IT manager in the financial services industry in 2019. He now spends his time writing on his own site,, volunteering at his church, and hiking and fishing when he gets the chance. Chris has also written three books on retirement, Reimagine Retirement (2019), The Minister’s Retirement (2020) and his most recent, Redeeming Retirement: A Practical Guide to Catch Up (2021). Chris and his wife have been married 50 years and have six grandchildren. Chris’s previous article was Time for a Ladder.

Do you enjoy HumbleDollar? Please support our work with a donation. Want to receive daily email alerts about new articles? Click here. How about getting our twice-weekly newsletter? Sign up now.

Notify of
Oldest Most Voted
Inline Feedbacks
View all comments

Free Newsletter