Simplest way to track QCDs?

Rocket J Squirrel

I have read the discussions here about Qualified Charitable Distributions. Since Quicken doesn't handle them, people have invented various ways to track them. Whatever works is great.

But I don't like cluttering my Quicken with dummy accounts and split transactions that net to zero. I like to keep things as simple as possible. I just want to write checks from my IRA and have those be the only transactions related to the QCDs.

So I made a subcategory Contributions:QCD and assigned it tax line item Form 1099-R:Total IRA gross distrib. Note not taxable distrib. because it isn't taxable. The "gross" form gets it into tax reports as an expense if the IRA is included. That gets it to subtract from gross income in reports. But it also prevents the amounts from showing in Tax Planner.

So in Tax Planner, I insert a manual kludge. In Other Income, Gains or Losses (User Entered), I insert the total of all QCDs as a negative number. (For me, Other Income is always otherwise zero.)

That's it. This is my first year doing QCDs, so I just came up with this. Somehow I feel it may be too simple. What am I missing or doing wrong?

Jim_Harman

I have just started with QCDs as well and I have discovered some odd quirks which may also affect other users.

My IRA is at Vanguard, and some of these issues may be unique to them. To request a QCD from them, you go down the path of taking a cash distribution from the IRA and one of the choices is "Send me a check payable to a charity". You enter an amount and they mail you a check, which you then forward to the charity along with any donation form the charity wants. That way Vanguard knows the distribution is a QCD and the charity knows who sent them the money.

If you will be taking QCDs, you can arrange to have a set amount distributed to a taxable account every month, but you need to keep track of the total distribution to match your RMD requirement. You should not sign up for Vanguard's automatic RMD service, because it does not re-compute when you take a QCD.

One quirk is that QCDs are taxable in my state (CT) and the IRA administrator is required to withhold state tax at a rate of 6.99%. This means that if I want Vanguard to issue a check for $100, I must request a larger distribution to cover the withholding.

For a check amount of C, the formula for the distribution amount is D = C / (1 - .0699) or D = C / .9301

So if I want to send the charity a check for $100.00, I must request a distribution of $107.52.

[edit to change tax line item and add explanation] To avoid having to make a manual adjustment in the Tax Planner, I created a special Expense Category for the QCDs like @Rocket J Squirrel did, but I gave it a Tax line item of "Form 1040:IRA contrib."

QCDs count towards your RMD, but the QCD portion is not taxable. Quicken does not have a Tax line item for QCDs and thus the Tax Planner and tax reports do not have a place for them, but the IRA contribution line has the same effect of reducing your taxable income.

I have a dummy taxable account that I have used in the past to track Roth conversions and such. In that account, I enter a split Deposit transaction with the IRA account in [square brackets] in the first line of the split and the amount equal to the full distribution. In the second line of the split, I enter the tax withheld with my state tax withholding Category and the amount as a negative number.

This leaves the check amount in the dummy account. I enter a second transaction as a Withdraw for the check amount and the special QCD Category. It is entered as a separate transaction rather than a third split line so that the contribution is shown separately, and because Quicken sometimes complains about transactions with a zero amount.

With these entries, the Tax Planner, Tax reports, and spending reports all appear to be correct and no manual adjustments are required in the Tax Planner. The only difference is that the QCD gift amounts are shown in the IRA Contribution section.

Rocket J Squirrel

Wow, @Jim_Harman , that is the kind of complexity I am trying to avoid. Morgan Stanley sent me a paper checkbook and I send checks to the charities.

I also elected not to have any taxes withheld from my IRA distributions. I pay estimated taxes instead. Simpler.

One reporting issue I do see, which I think will also be the case for @Rocket J Squirrel, is that in the Income and Expense by Category report, the QCD Expense category shows as a negative number in the Income section. I think this is because it has tax line item that would normally be used for income.

You're right, I hadn't noticed that. It seems to work better if I remove the tax line item but leave the category "tax related". Then it properly appears as an expense in both spending reports and the Tax Summary report.

Jim_Harman

Well I guess I am trying for the "best" way rather than the "simplest" way. My setup is necessarily more complex because of how Vanguard supports QCDs and the fact that CT requires withholding.

Rocket J Squirrel

Ya gotta work with what ya have.