For many families, the last two years have provided a rollercoaster of emotions, finances, schedules, and lifestyle. Throughout the same period, charities encountered new operational challenges and similar hardships. One thing remained strong throughout the first two years of the pandemic: the generosity of God’s people impacting ministries on a global scale. After another record year of generosity in 2021, The Signatry is excited to see what God has in store for the coming year.
Despite continued uncertainty for some sectors headed into 2022, the environment for charitable giving remains upbeat. The following factors have contributed to this sentiment:
Market performance: Although the market has been volatile, the “big 3” indices have shown strong growth. The S&P 500® index, DOW Jones Industrial Average, and Nasdaq Composite Index all gained over 20% in value in 2021. As a result, many investors have highly appreciated non-cash assets in their portfolios. This presents an excellent opportunity to give publicly traded securities, minimize taxes, and maximize the funds allocated for a donor’s favorite charity.
Tax benefits for charitable contributions: Current tax law offers deductions to donors who itemize taxes and contribute cash or appreciated non-cash assets held for more than a year. Donors may claim a tax deduction for non-cash asset gifts to qualified public charities and donor advised funds up to 30% of their adjusted gross income (AGI). The tax deduction limit for contributions of cash rises to 60% of one’s AGI. Donation amounts in excess of these limits may be carried over for up to five tax years.
As of now, there has been no announcement of any CARES Act charitable benefits continuing for 2022 contributions.
Giving More in 2022
There are a few main strategies to know as a donor seeking to maximize impact with their current assets in 2022.
Give appreciated non-cash assets instead of cash
For those who itemize deductions, giving capital assets such as stock, cryptocurrency, real estate, or business interest to a donor advised fund and then giving from the proceeds may maximize your generosity and minimize taxes. Beyond claiming a deduction for the fair market value of an asset, donors can potentially avoid the capital gains tax they would otherwise incur if they sold the asset and donated the cash proceeds. This can mean even more going to charity and less to taxes, as shown in the example below.
This example is only for illustrative purposes of a publicly traded appreciated stock gift. This scenario assumes a cost basis of $20,000, a fair market value of $50,000, ordinary income tax rate of 37%, and capital gains tax rate of 25%.
Leverage deduction rules or a bunching strategy
- Give beyond existing tax deduction limits and carry over the excess deduction. Donors who wish to itemize deductions may choose to give beyond annual deduction limits and carry over the excess amounts up to five years.
- Bunch contributions. You may find that the total of your itemized deductions for 2022 will be slightly below the level of the standard deduction. You might find it beneficial to bunch 2022 and 2023 charitable contributions this year, itemize deductions on 2022 taxes, and take the standard deduction on 2023 taxes. In addition to achieving a large charitable impact now, this strategy could produce a larger deduction in the first year than two separate years of itemized deductions, depending on your contribution amounts and filing status. With a donor advised fund, you can recommend a schedule of gifts to go out across the two years and add any additional amounts from the itemized 2022 return as bonus gifts to charities.
Consider retirement assets
- Make a Qualified Charitable Distribution (QCD) of IRA assets. Individuals age 70½ and older can direct up to $100,000 per year tax-free from their Individual Retirement Accounts (IRAs) to operating charities through QCDs. By reducing your IRA balance, a QCD may also reduce your RMD in future years, lower taxable estate, and limit your beneficiaries’ tax liability .
What You Can Do Next
The Signatry has resources and information online to help guide your charitable strategy and generosity journey. At the start of a new year, consider these resources:
- Create a family mission statement
- Invest in alignment with your goals and passions
- Bring your advisor into your generosity journey
- Become a Cause Champion giver
For insights specific to the strategies discussed in this article, donors are invited to review these articles:
- Donating a complex, non-cash asset
- Bunching charitable contributions
- Making Qualified Charitable Distributions (QCDs)
If you are contemplating any of the strategies highlighted above, consult with your tax and legal advisors. Donors and advisors can also call us at 913-310-0279 for more information and to set up a meeting.