Financial Insights

Planning Opportunities to Consider Before Year-End Part 4 – Charitable Contributions

As the end of 2022 approaches, we here at ACM Wealth want to ensure our clients have not missed any opportunities to enhance their financial situation.  In previous weeks, we have discussed Required Distributions from your IRA, reviewing realized capital gains and converting part of your IRA to a ROTH IRA. This week’s year- end checklist item focuses on charitable contributions.

Giving to charity can be life-affirming—and as a bonus, it can help with your tax bill. If donating to a charity is part of your tax plan, here are a couple of tips so you can maximize your tax-deductible donation before year-end.

In 2022, there is no longer a $300 (or $600 if filing a joint return) ‘above- the- line’ deduction for charitable contributions, as there was in 2020 and 2021. So, givers will need to itemize their deductions in order to realize a tax deduction for charitable contributions.  With the standard deduction of $12,950 for single filers or those married filing separately, and $25,900 for those filing a joint return, exceeding these thresholds can be difficult.  What can be done?

As an example, let us assume John and Lynn, who file a joint return, regularly donate $10,000 annually to various organizations. But, their total itemized deductions, including their $10,000 in donations, do not exceed the standard deduction. In order to maximize the tax benefit of their charitable gifts, John and Lynn can ‘bunch’ gifts and take them in some years and not in others.  John and Lynn can make charitable contributions of $20,000 in 2022 (two years’ worth of giving) and itemize in that year, and make no charitable contributions in 2023 and take the standard deduction, thus maximizing overall tax breaks.

If you do not want to donate cash before year-end, consider giving shares of appreciated stock instead.  Donating stock has two benefits:  one, the value of your stock donation is equal to the fair market value of the stock at the time it is donated ( not the purchase price) and;  two, you will not have to pay capital gains tax on the appreciated stock you donated.

Qualified contributions in cash are limited to 100% of the taxpayer’s Adjusted Gross Income (AGI), and gifts of stock are limited to 30% of the taxpayer’s AGI.  AGI percentage limits on other property (other than stock) that is donated, and the organization donated to, can lower these limits.  It is best to check with your accountant to determine your actual AGI limits.

Donors who either bunch deductions or give appreciated assets may want to consider a donor- advised fund, or DAF.  These allow the donor to take an upfront deduction and direct donations to specific charities in the future.  A DAF has its own restrictions, and contains fees, so please consult your ACM advisor for details.

A final gifting strategy is for taxpayers age 70 ½ and older and is a Qualified Charitable Distribution (QCD).  A QCD is a direct transfer of funds from your IRA custodian to a qualified charity.  If you have check writing privileges on your IRA, you can write the check directly to the charity of your choice. If you do not have check writing privileges, you can submit a distribution request to your custodian and instruct them to make the check payable to the specified charity.  Having a distribution made to you directly and then writing the check to the charity negates the benefits of the QCD.

The benefits of a QCD are: one, the QCD is excluded from your taxable income and; two, a QCD reduces the amount of your required distribution (for those 72 or older), thus lowering your taxable income.  This can lower your Medicare premiums (IRMAA) in addition to lowering your taxable income. The maximum annual amount that can qualify for a QCD is $100,000.

And finally, to qualify, any contribution must be made to a qualified organization on or before December 31 of the tax year.  If contributing cash via check, it must be postmarked by December 31 to conform with the Treasury Department’s ‘delivered when mailed’ rule.

If you plan on gifting securities to a charity, or making contributions to or grants from a Donor Advised Fund, please check with your custodian for year- end processing guidelines as they may require these to be processed earlier in December to ensure completion in 2022.

The foregoing content reflects the opinions of Advisors Capital Management, LLC and is subject to change at any time without notice. Content provided herein is for informational purposes only and should not be used or construed as investment advice or a recommendation regarding the purchase or sale of any security. There is no guarantee that the statements, opinions or forecasts provided herein will prove to be correct. Past performance may not be indicative of future results. Indices are not available for direct investment. Any investor who attempts to mimic the performance of an index would incur fees and expenses which would reduce returns. Securities investing involves risk, including the potential for loss of principal. There is no assurance that any investment plan or strategy will be successful.


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