QCD Cover Letter to Charity?

[Midpack]

Requested my first QCD checks from Vanguard, and wondered what I need to request for documentation from the charity for tax purposes. I assume most 501c3's have stock documentation that already includes what I'll need, but since I am sending physical checks (made out directly to them), I might as well include a cover letter. As far as I can tell I need documentation:

• name of charity
• amount of (cash) contribution
• date
• statement that no goods or services were provided by the charity

Anything else I should note?

I didn't find a sample letter online, only samples from a charity>donor, not from donor>charity.

 

[TheWizard]

Just put a yellow stickie on the check requesting an IRS letter. They've done this many times before...

 

[OldShooter]

It's always been automatic for me. I figure that in the highly unlikely event I get audited and a letter is missing, I will just request a duplicate. I'm too lazy to chase letters.

 

[SecondCor521]

As far as the IRS is concerned, what is in your letter is completely irrelevant. The charity is supposed to provide an acknowledgment to you for your records; IIRC the wording is the "same sort of acknowledgment required for a Schedule A charitable contribution". If they're a competent charity they'll know what to do.

 

[Koolau]

We rarely have to ask a charity for a letter. Most are on top of this requirement. If not, maybe it's time to help someone else next year but YMMV.

 

[Healthy Lifestyle]

Is it better to stay with a larger charity for the ease of documentation?

 

[jebmke]

Is it better to stay with a larger charity for the ease of documentation?

for ease of administration we will probably limit QCDs to 2-3 larger ones to charities where we don't mind their knowing who we are. The rest will get done with our DAF. The larger, more established ones will know what to send you -- it is the standard ack you would use for documentation had you made this a Schedule A item.

 

[OldShooter]

Is it better to stay with a larger charity for the ease of documentation?

We write Schwab checks for virtually everything, even small public radio payments and DW writing $20 funeral memorials. As I said, I don't pay a lot of attention to auditing my thank-you-letter file, but I don't think size has a lot to do with whether they send letters or not.

Edit: With the Schwab checks comes a conventional check register where we record the QCD checks that we write. IIRC it is under 20/year. We just total them up at the end of the year and plug the number into the tax return. I can't imagine that a DAF involves any less "administration" than that. YMMV, though, especially if your custodian does not offer check writing.

 

[Running_Man]

Requested my first QCD checks from Vanguard, and wondered what I need to request for documentation from the charity for tax purposes. I assume most 501c3's have stock documentation that already includes what I'll need, but since I am sending physical checks (made out directly to them), I might as well include a cover letter. As far as I can tell I need documentation:

• name of charity
• amount of (cash) contribution
• date
• statement that no goods or services were provided by the charity

Anything else I should note?

I didn't find a sample letter online, only samples from a charity>donor, not from donor>charity.

From the documentation I have this is the requirement to have to acknowledge a QCD donation for valid tax claiming:
--------------------------------------------------:
Name of charity
Amount and date received
FEIN Number of the Charity and what type of charity
Acknowledgement that no goods or services given in exchange for donation.

--------------------------------------------------
This is the base form that I use for several charity organizations I work with
----------------------------------------------------------------------------------------

Thank you for your donation to XXXXXX from your IRA for $500.00. It was received and deposited in our checking account on December 10th, 2023.


NAME - XXXXXXXXXXXX is a 501(c) (3) charitable non-profit organization.
NAME XXXXXXXXXXXX's FEIN is XX-XXXXXXX. No goods or services were given in exchange for this donation. Please consult your accountant for proper tax treatment.


XXXXXXXX Name of person at Charity Acknowledging (not required)
XXXXXXXX Position of person at Charity Acknowledging (not required)
----------------------------------------------------

 

[jebmke]

We write Schwab checks for virtually everything, even small public radio payments and DW writing $20 funeral memorials. As I said, I don't pay a lot of attention to auditing my thank-you-letter file, but I don't think size has a lot to do with whether they send letters or not.

Edit: With the Schwab checks comes a conventional check register where we record the QCD checks that we write. IIRC it is under 20/year. We just total them up at the end of the year and plug the number into the tax return. I can't imagine that a DAF involves any less "administration" than that. YMMV, though, especially if your custodian does not offer check writing.

The taxpayer only needs to document the contribution to the DAF. After that, it matters not whether the charity sends an ack or not since the deduction is based on the contribution to the DAF.

 

[Running_Man]

This is not true from the IRS website, in order to claim a deduction you must have a written acknowledgement from the charity

"Get a receipt​

QCDs are not deductible as charitable contributions on Schedule A. But, as with deductible contributions, the donor must get a written acknowledgement of their contribution from the charitable organization before filing their return.

In general, the acknowledgement must state the date and amount of the contribution and indicate whether the donor received anything of value in return. For details, see the Acknowledgement section in Publication 526, Charitable Contributions.

For more information about IRA distributions and QCDs, see Publication 590-B, Distributions from Individual Retirement Arrangements (IRAs)."

Qualified charitable distributions allow eligible IRA owners up to $100,000 in tax-free gifts to charity | Internal Revenue Service

IR-2023-215, Nov. 16, 2023 — The Internal Revenue Service today reminded individual retirement arrangement (IRA) owners age 70½ or over that they can transfer up to $100,000 to charity tax-free each year.

www.irs.gov

 

[audreyh1]

The taxpayer only needs to document the contribution to the DAF. After that, it matters not whether the charity sends an ack or not since the deduction is based on the contribution to the DAF.

Right, once set up each year you simply select each charity and enter the amount to send online at the DAF. The DAF takes care of all the rest. Nothing goes on any tax form, no paperwork, no forms to save, and even anonymous if desired.

 

[Running_Man]

You realize a DAF must by law pick the charities to receive the donation, and individuals are only advising what charity you would like to give to. Fidelity fees are 0.6% of the donation amount with a $100 minimum fee and then averages 0.35% of the Giving account balance with a minimum donation of $50. The DAF is the charity and would send you the acknowledgement because you are donating to the DAF not the charities themselves. The DAF is required to acknowledge to you the donor the amount you give.

 

[jebmke]

You realize a DAF must by law pick the charities to receive the donation, and individuals are only advising what charity you would like to give to. Fidelity fees are 0.6% of the donation amount with a $100 minimum fee and then averages 0.35% of the Giving account balance with a minimum donation of $50. The DAF is the charity and would send you the acknowledgement because you are donating to the DAF not the charities themselves. The DAF is required to acknowledge to you the donor the amount you give.

right; although if it is a traded security, the amount that goes in the DAF may differ slightly from the amount that you deduct on Schedule A.

 

[OldShooter]

Fidelity fees are 0.6% of the donation amount with a $100 minimum fee and then averages 0.35% of the Giving account balance with a minimum donation of $50.

Wow. I have never looked into DAFs but I had no idea that they were so expensive. Schwab charges us nothing to provide and process the QCD checks. I think I'll stick with the checks.

 

[jebmke]

Wow. I have never looked into DAFs but I had no idea that they were so expensive. Schwab charges us nothing to provide and process the QCD checks. I think I'll stick with the checks.

A DAF is less compelling as a pass-through; although the costs are not significantly more than creating your own private foundation IMO. The real financial advantage is tax-rate arbitrage. There are non-financial advantages like anonymity which are valuable as well, but in general a QCD is the most likely to be an advantage financially.

I'm leaning toward just blowing it all into a community foundation in one big whoosh each year to avoid the work of mailing a lot of checks.

 

[MarieIG]

Is it better to stay with a larger charity for the ease of documentation?

One of my charities is a very, very small one, which hosts families of very ill children being treated at Mayo Clinic in Rochester, Minnesota. It was set up in honor of their son who passed at age three. My family stayed there during the height of Covid when they were unable to stay at Ronald McDonald House. They always send "the letter."

I supposed if someone really wanted to support a small charity, and had a concern, they could confirm its 501(c) (3) status, and that the charity sends out letters prior to making the donation.

 

[harllee]

I just do a letter saying that the check is from my IRA and that I need the required IRS letter

 

[audreyh1]

A DAF is available to anyone. QCDs aren’t available until you reach 70.5 and can only be made from IRAs.

Once someone starts doing QCDs it’s unlikely they would open a DAF, unless they had a lot of appreciated securities in their taxable accounts in which case a DAF is a very fast and efficient way to initially donate it, especially if linked to the same brokerage. It’s overall very handy for donating from taxable accounts.

Beyond anonymity, which is great, DAFs are mainly a great way to initially set aside funds for charity when it’s most convenient for you (usually tax wise), yet parcel out grants over many years if desired.

 

[audreyh1]

FWIW when we set up our DAF with Fidelity, we added almost all our charities as they were smaller local charities and not in the system. This was very straightforward as they were all qualified charities. Now on his birthday each year DH sits down and simply enters the amount to grant each charity online and we’re done for the year. No mailing, no records to save, no tax form entry. It’s great when you are under 70.5.

Once DH is of age we plans to use the DAF for a couple of large annual donations, and use the existing DAF for smaller donations. Also whenever we decide that we are ready to donate a large chunk of appreciated securities.

 

[jebmke]

A DAF is available to anyone. QCDs aren’t available until you reach 70.5 and can only be made from IRAs.

Once someone starts doing QCDs it’s unlikely they would open a DAF, unless they had a lot of appreciated securities in their taxable accounts in which case a DAF is a very fast and efficient way to initially donate it, especially if linked to the same brokerage. It’s overall very handy for donating from taxable accounts.

Beyond anonymity, which is great, DAFs are mainly a great way to initially set aside funds when it’s most convenient for you (usually tax wise), yet parcel out grants over many years if desired.

yes; more than once I have used the VG DAF to dump an individual stock I bought during my stupid years when I thought individual stocks were a good idea. In particular, if one was about to be merged out in a cash deal I'd jettison it before the close date so they didn't stick me with a gain.