Tax-smart Philanthropy for 2022

Donors give to Hillel International to make a positive impact on the life of Jewish college students, and on the Jewish future. Frequently, the gift amount is a financial decision. Tax incentives help many Americans give more than they previously thought possible and provide even more resources to support charitable activities.

That’s why it can be valuable to stay on top of tax changes when creating your philanthropic plans this year and in years to come. Here are a few 2022 considerations and suggestions:

Charitable Deduction Changes: The charitable income tax benefits included in the Coronavirus Aid, Relief, and Economic Security Act (CARES Act) have not been extended for 2022. The $300 ($600 for married couples filing jointly) standard deduction for qualified cash contributions expired as of December 31, 2021. 

In addition, the charitable contribution deduction limit for a gift of cash to a public charity is now back to 60 percent of adjusted gross income. The 100% limit expired as of December 31, 2021.

Charitable IRA Rollover/Qualified Charitable Distributions (QCD) Update: The required minimum distribution (RMD) from most individual retirement (IRA) plans has been back since 2021, after a brief hiatus in 2020. QCDs allow those over 70 ½ or with RMDs on IRAs to gift funds to a qualified charity, such as Hillel International, and avoid taxation on the income otherwise received. 

Note: Due to changes made by the Setting Every Community Up for Retirement Enhancement (SECURE) Act, if your 70th birthday is July 1, 2019 or later, you do not have to take withdrawals until you reach age 72. Roth IRAs do not require withdrawals until after the death of the owner.

Many advisors believe the value of making a QCD has increased as the tax savings on the gifted funds can offset the lost deductions. 

Three Tax-smart gift planning strategies:

One of the most effective tax strategies for achieving maximum charitable impact is donating appreciated assets (often stock or mutual funds) held for more than one year. Donors who use this strategy can generally eliminate the capital gains tax they would otherwise incur if they sold the assets first and then donated the proceeds. 

Eliminating the capital gains tax (15% or 20% depending on the donor’s income level) can increase the amount available for charities since there is no tax on the appreciation. 

Whether itemizing deductions or taking the standard deduction, individuals age 70½ and older can direct up to $100,000 ($200,000 for married couples) each year tax-free from their IRAs to qualified charities, such as Hillel International, through QCDs. By reducing the IRA balance, a QCD may also reduce the donor’s taxable income in future years, lower the donor’s taxable estate, and limit IRA beneficiaries’ tax liability.

Some donors may learn the total of their itemized deductions for 2022 will be below the standard deduction. In such a case, it may be beneficial to combine or “bunch” 2022 and 2023 charitable contributions into one year (2022), itemize deductions on their 2022 tax returns, and take the standard deduction on 2023 taxes. 

In addition to achieving greater charitable impact in 2022, this strategy could produce a larger two-year deduction than two separate years of itemized deductions, depending on income level, tax filing status, and giving amounts each year.

For more information about how legislation or any of these strategies may impact your specific financial situation, please consult with your tax, legal, or financial advisor(s). To speak directly with (Chuck) Charles M. Miller, JD, AEP® Senior Director of Planned Giving, please call 202.449.6529 or email [email protected]