18 Oct 2022 Charitable Giving Tax Strategies
Authored by Haynie & Company Partner Bernard Abercrombie, CPA
As we approach the end of the year, my clients are asking what tax benefits still exist for charitable giving in 2022. An explanation of what is available needs to start with the Tax Cuts and Jobs Act passed in 2017. One of the significant changes in that law was the nearly doubling of the Standard Deduction. That single change eliminated the benefit of itemizing one’s deductions since most taxpayer’s now fell under the new limit. For instance, the Standard Deduction for a married couple went from $12,700 to $24,000. Total Itemized Deductions under $24,000 no longer had any additional tax benefit.
The Standard Deduction for 2022 for a married couple under age 65 is $25,900. An additional $1,400 per person is allowed for those over 65. The significance is that most taxpayers are no longer itemizing and charitable contributions are considered part of your Itemized Deductions. Therefore, charitable contributions no longer impact many tax returns.
As such, we will focus here on those who still itemize or are taking RMDs from their retirement plans.
First is the concept of “bunching” your Itemized Deductions. For charitable contribution purposes, this would represent making two or more years of contributions in one tax year. If that still did not put you over the Standard Deduction for that year, there would be no benefit.
Donor Advised Fund
Along those same lines is the concept of utilizing a Donor Advised Fund. This is frequently used in years when an unusual income-producing event, like the sale of a business, occurs. In this situation, a large contribution can be made to the Donor Advised Fund and sprinkled out over several years to the desired charities. The charitable deduction is created upon the up-front funding of the Donor Advised Fund, not as the contributions are spread out over the next few years.
Contribution of Appreciated Stock
Another often used but sometimes overlooked strategy is the contribution of appreciated stock. When making a contribution of appreciated stock, the allowed deduction is based on the FMV of the stock at the time of the donation, but no tax has to be paid on the unrealized gain, bypassing the capital gain that would have been incurred had the stock been sold.
Qualified Charitable Distribution
For those who have reached the age of 70 ½ or who are now 72 and are making annual RMD distributions from their retirement plans, a Qualified Charitable Distribution (QCD) may make sense. In this scenario, a contribution can be made directly from one’s retirement account to the charity. The distribution is not reported as taxable income nor is the contribution reported as a tax deduction. Since these bypass the Itemized Deduction calculations, one need not itemize to be able to benefit from the contribution.
There can be limits on the amount of a deduction allowed in the contribution year.
In conclusion, there are several other charitable giving opportunities, but most of those are significantly more complex and require significant planning. We at Haynie & Company would be happy to assist you with all your tax planning needs.
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