- Over the past five years, affluent Americans increased their donations to charity by 48%.1
- Understand various strategies to help you maximize the impact of your charitable donations and your income tax savings.
- To qualify for this tax year, contributions need to be received by your charities by Dec 31, 2022.
Despite the challenges of the past few years, Americans continued to give to charities at impressive rates. According to a Bank of America study, in 2021, individuals gave $484.85 billion, a 4% increase from already record levels in 2020. During the pandemic, 90% of aﬄuent Americans (those with a net worth of $2.6 million or more) gave to charity in a testament to their spirit of generosity. In fact, over the past five years, affluent Americans increased their donations to charity by 48%.1
This article is for informational purposes. It is not a replacement for a tax professional’s advice. Please consult your tax, legal, and/or accounting professionals before making any decisions that could impact your taxes.
With the year-long market turmoil, it would be understandable if charitable giving declined in 2022, but that doesn’t seem to be the case, as giving has continued at a heightened rate.2
Whether it’s a health crisis, natural disaster, or war, there is a historical pattern that during challenging times, Americans respond with philanthropy. It’s an enviable characteristic of our country. While some may claim that charitable giving among the wealthy is just about tax write-offs, the Bank of America survey showed that 72% of affluent people said that a tax deduction, or lack thereof, would not impact the amount of their charitable giving.1
Regardless of your motivation for giving, there are potential tax benefits to making charitable donations. As financial professionals, we can provide some guidance to help you create a giving strategy that maximizes the impact of your charitable donations and philanthropic interests.
Year-end giving strategies
Charitable giving happens throughout the year, but 30% happens in December as individuals and families focus on their annual tax strategy. So, if you haven’t decided on your giving strategy for 2022, you’re in good company.3
Let’s start with the basics. Charitable donations can be tax deductible for individuals who itemize their deductions when they file their tax returns. The annual deduction limit for gifts of cash to public charities is 60% of Adjusted Gross Income (AGI) and 30% for non-cash donations.
The following strategies may help you maximize both the impact of your charitable donations and your income tax savings.
- Use your traditional Individual Retirement Account (IRA) to make Qualified Charitable Distributions. If you are at least 70½ years old, you can donate up to $100,000 from your IRA annually as a Qualified Charitable Distribution (QCD). The distribution will come from pre-tax dollars and can satisfy your annual Required Minimum Distribution. You need to be aware that this strategy is for IRAs only and QCDs cannot come from either qualified retirement plans or ongoing SEP or SIMPLE IRAs.4
Once you reach age 72, you must begin taking the required minimum distributions from a traditional IRA in most circumstances. Withdrawals are taxed as ordinary income and, if taken before age 59½, may be subject to a 10% federal income tax penalty.
- Donate appreciated securities. If you are thinking about using the proceeds from appreciated securities to make a charitable donation, a better strategy may be to donate the actual appreciated securities rather than selling the position and donating the cash. This may be a particularly good idea if you have concentrated positions with large unrealized capital gains. Donating those securities directly to your favorite charity may manage the capital gain taxes you would have to pay as a result of selling the security.4
- Donate the cash from the sale of depreciated securities. If you have depreciated securities, it’s better to recognize those losses than to gift those securities directly. By harvesting the tax losses from your portfolio and donating the cash proceeds, you can recognize a tax loss that can offset any capital gains for the year or be used to offset up to $3,000 of your ordinary income. On top of that, you will receive a charitable deduction for the cash you donate. With the losses you may have in your portfolio, tax-loss harvesting may be a good strategy in 2022 to reduce your taxable income.4
- Consider “bunching” your contributions. In general, you can only take a deduction for charitable contributions if you itemize your taxes. Since the 2022 standard deduction is $12,950 for single filers and $25,900 for joint filers, to make it worth itemizing deductions, you may want to bunch your charitable contributions. For example, rather than donating $10,000 to a charity this year and next, you may want to consider accelerating your giving and making a $20,000 donation this year and skipping your donation next year. This could put you above the standard deduction threshold, making itemizing your taxes a better strategy for the year.4
Deadlines for 2022 Charitable Contributions
There is still time to put your 2022 charitable giving strategy in place, but the best time to act may be now, so consider acting sooner than later. To qualify for this tax year, contributions need to be received by your charities by December 31. DAFs may be earlier to allow for processing time.
If you are donating non-cash assets, those contributions may need to be reviewed and processed. This could take several weeks or longer, so you need to prepare accordingly.
In addition, if you want to make a 2022 QCD from your IRA, you should submit the request by the end of November to ensure the gift is received by December 31.
Give us a call. We'd welcome the chance to hear about your charitable giving approach for 2022. We take great satisfaction in hearing about how our clients are using their generosity to have an even greater impact on their charities while helping them understand how the approach fits into their overall financial strategy.
1 Bankofamerica.com, 2021
2 Forbes.com, 2022
3 Nonprofitssource.com, 2022
4 Nasdaq.com, 2022
5 WealthManagement.com, 2022
6 Investopedia.com, 2022
The content is developed from sources believed to be providing accurate information. This material was developed and produced to provide information on a topic that may be of interest. The opinions expressed and material provided are for general information and should not be considered a solicitation for the purchase or sale of any security.