Here are some friendly year-end reminders for the rules around charitable giving:
- Charitable contributions are deductible for donors who itemize deductions when filing their annual tax returns.
- 2022 deduction limits for gifts to public charities, including donor-advised funds, are 30% of adjusted gross income (AGI) for contributions of non-cash assets, if the assets were held more than one year, and 60% of AGI for contributions of cash.
- Contribution amounts more than these deduction limits may be carried over up to five subsequent tax years.
There are many ways to give assets away and some are more favorable than others, depending on the situation.
Here are a few tips to consider:
- Tip 1: Gift of appreciated assets rather than cash. One of the most effective strategies for giving with maximum charitable impact and minimizing taxes is to donate appreciated non-cash assets held longer than one year. Donors who use this strategy generally can eliminate the capital gains tax they would otherwise incur if they sold the assets first and donated the proceeds.
- The long-term capital gains tax is typically 15% or 20%, depending on the donor’s income level. Eliminating this tax can increase the amount available for charities by up to 20% and increase the amount saved on taxes.
- Tip 2: Consider combining two years of giving into 2022 if that allows you to take more than the standard deduction then use the standard deduction in 2023.
- Tip 3: Perhaps a Donor-Advised Fund (DAF) may be appropriate with this strategy. A DAF can receive both cash and non-cash assets, take the deduction in 2022 up to the AGI limits and then dole out the giving of said assets in 2023 and beyond.
- Tip 4: Donate cash proceeds from the sale of a depreciated asset. Certain securities that are valued less than what you paid for it can be sold, tax-loss harvested against other capital gains (or against $3000 of ordinary income) and then claim a charitable deduction on the cash that was donated.
- Tip 5: Satisfy an IRA Required Minimum Distribution (RMD) through a Qualified Charitable Distribution (QCD). Whether itemizing deductions or taking the standard deduction, individuals age 70½ and older can direct up to $100,000 per year from their traditional IRAs to operating charities through QCDs. The QCD can be used to satisfy all or part of the donor’s RMD for 2022 and is not considered taxable income for the donor.
If you or a family member are considering a charitable contribution and would like an objective take on your plan, please let our team know.