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  • Writer's pictureRyan M. Vogel, CFP®

Tax Reporting Tips – Qualified Charitable Distributions & RMD Replacements

Updated: Jun 13, 2022


Long weekends have a way of triggering certain mindsets and actions for me. Memorial Day weekend means golf season is in full swing (pun intended). Labor Day weekend means the start of school and football season. Thanksgiving means I better start thinking about my wife’s upcoming birthday and what to get everyone for Christmas. Presidents Day means an extra day to go skiing and that I better start pulling together information for my taxes soon. I bring this up because it reminds me of one of my favorite quotes:


“Vision without execution is hallucination” – Thomas Edison


This quote reminds me that while we effectively provide tax planning advice to our clients, it is only useful if it is reported properly on tax returns. Two examples come to mind for this tax reporting season. Qualified Charitable Distributions (QCD) and Required Minimum Distribution (RMD) replacement due to the CARES Act.


A qualified charitable distribution is when money is sent directly from a tax deferred account, such as an IRA, to a public charity. You need to be over the age of 70 ½ to be eligible for this technique and you can gift up to $100,000. Utilizing this strategy has multiple benefits. You can avoid having to report this money as income on your tax return, while still supporting a favorite charity. This strategy has become even more popular due to changes in the tax code a few years ago. However, when you receive tax form 1099-R from your custodian (Schwab, Fidelity, TD, etc.) the tax form doesn’t differentiate between money that was taken for personal use and money that was sent to charity. If you processed a Qualified Charitable Distribution (QCD), you need to make sure your accountant is aware of the amount by providing supporting documentation. Otherwise, money that would otherwise be excluded from taxation, can easily be accidentally reported as taxable to you.

Another example is the strategy of replacing Required Minimum Distributions (RMD) due to the 2020 CARES Act. In response to the COVID-19 pandemic, the CARES Act was passed in March 2020. One provision in this act was the suspension of RMD for 2020. We individually analyzed client situations and determined whether it made sense to either return their RMD or take no action. For clients who replaced their RMD, this information needs to be reported properly on their tax return. Tax form 1099-R shows all money that moved out of a retirement account. If an RMD was replaced, it is not shown on the 1099-R tax form. Accountants need to know how much was replaced so that it can be reported as a non-taxable on your tax return. A subsequent tax form (5498) is mailed in May confirming the replacement and the fact that no tax is due. We are actively communicating with our clients to ensure proper tax reporting to avoid unnecessary taxes and/or the need for filing an amended tax return.


Great ideas are useless without proper implementation. We develop tax strategies to save our clients’ money, but this only works if the tax information is reported properly. We find that effective and collaborative communication between all parties involved (us, clients, custodians, and accountants) is the best way to make sure a great tax planning strategy becomes reality. If you are reading this and you do not currently work with Novi and would like more information, please feel free to contact us our Contact page or by calling our office. If you are a client and would like to discuss further, please let us know. This way you can relax and enjoy your long weekends without having to think about your taxes.


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