Charitable Giving 2022
With the holiday and end of year charitable giving season upon us, here’s a rundown of information you will need.
Two COVID Related Charitable Benefits Have Expired: The CARES Act permitted taxpayers who claim the standard deduction to get a deduction on their 2020 and 2021 returns for cash contributions of $300 they made to qualifying charitable organizations. It also allowed for a larger deduction (up to 100 percent of AGI, from 60 percent) for itemizers. Those two features are gone for 2022 and the rules revert back to what they were pre-pandemic.
Very Few Can Claim a Tax Benefit for Giving: To receive a tax benefit for giving in 2022, you must itemize your deductions. That means that you need to tally what you spent on state and local taxes, mortgage interest, out-of-pocket medical expenses, and charitable donations. If your total itemized deductions are higher than the standard deduction amounts for 2022 ($12,950 for singles, $25,900 for MFJ, and $19,400 for HOH), then you would choose to itemize.
Only about 10 percent of tax filers itemize, which means that most people who give to charity are doing so for altruistic purposes, not for tax savings. You can try to “bunch” deductions into a single year to push you above the threshold, in which case you should accelerate charitable giving for that particular year.
Itemizers Can Still Give With Uncle Sam’s Help: If you have a taxable investment account, you can gift highly appreciated securities to charities: you'll write off the current market value, not just what you paid, and avoid capital gains taxes.
Retirees Can Avoid Taxable Income and Feel Virtuous: If you’re over 70 ½, consider a Qualified Charitable Distribution (QCD), which allows you to gift up to $100,000 directly from your IRA to a public charity (not to a private foundation, a charitable supporting organization or a donor advised fund), without having to include the distribution in your taxable income. If you use the QCD, you can’t deduct the amount as a charitable contribution, but if you are lucky enough to not need the money for cash flow, a QCD will allow you to avoid paying taxes on the distribution, and it may also satisfy your Required Minimum Distribution.
Consider Donor Advised Funds (DAFs): These accounts allow you to contribute cash, appreciated assets, or investments and grant to a charity at any time; write off the current market value (not just what you paid) to escape taxes on the accumulated gains; and recommend grants to your favorite charities whenever makes sense for you. DAFs also allow you to give in a year when you have had higher than expected income, or when you are bunching deductions.
NUTS AND BOLTS:
Be Cautious and Vet Your Charity: Do not donate over the phone or give anyone your credit card or other personal information until you verify it's legit with the IRS’s Tax Exempt Organization Search tool. To see how much of your donation goes to supporting programs (versus overhead), access resources like the Better Business Bureau’s (BBB) Wise Giving Alliance, Charity Watch, GuideStar, Charity Navigator and GiveWell.
Keep Good Records: For any cash or property valued at $250 or more, you must have a receipt (bank record, payroll deduction or written communication) identifying the organization, the date and amount of the contribution and a description of the property. For text donations, flag the bill with the name of the receiving organization, the date of the contribution, and the amount given. If you are facing the end of year deadline, use a credit card, so the donation is deductible as of the date the account is charged.