8 Year-End Charitable Giving Strategies

2022 has presented Americans with the highest inflation in over 40 years, rising interest rates and frequent volatility in US stocks and other asset classes.

Despite these conditions, donors have been steadfast in their support of charities and causes close to their hearts. In the first six months of the year, Schwab Charitable donors gave $2.1 billion to charities, an increase of 16% over the same period in 2021.

Advisors are uniquely positioned to help clients achieve their charitable goals through tax-wise donations.

Charitable contributions remain deductible for customers who itemize the deductions when filing their tax return. In 2022, the annual deduction limits for donations to public charities, including donor-oriented funds, are 30% of adjusted gross income (AGI) for contributions of non-cash assets, if the assets have been held for more than one year, and 60% of the AGI for contributions in cash. Contribution amounts in excess of these deduction limits can be carried forward for up to five subsequent tax years.

These eight strategies will help donors continue to give with maximum charitable impact and minimize their taxes before the end of the year.

1. Donate appreciated non-cash assets instead of cash.

One of the most effective strategies for giving with maximum charitable impact and minimizing taxes is to donate valued non-cash assets held for more than a year. Clients using this strategy can generally eliminate the capital gains tax they would otherwise incur if they sold the assets first and donated the proceeds.

Long-term capital gains tax is generally 15% or 20%, depending on the income level of the client. Eliminating this tax can increase the amount available to charities by up to 20% and increase the amount saved on taxes, as shown in Option 2.

In the fiscal year that ended June 30, 61% of contributions to Schwab Charitable’s donor-advised fund accounts were in the form of non-cash assets, including publicly traded securities, restrictions and private business interests.

2. Use both standard deduction and itemized deductions by combining two years of contributions in 2022.

Some clients may estimate that their total itemized deductions will be less than the standard deduction level for 2022: $12,950 for single filers or $25,900 for married couples filing jointly.

In this case, it might be beneficial to combine or “bundle” their 2022 and 2023 charitable contributions this year, itemize the deductions on their 2022 tax returns, and take the standard deduction on their 2023 tax returns.

In addition to helping your client achieve a significant charitable impact in 2022, a bundling strategy could produce a larger two-year deduction for them than two separate years of itemized deductions, depending on income level, filing status income and amounts donated each year. An example of grouping is shown in option 2.

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3. Open a donor-advised fund account, make tax-deductible contributions before the end of the year, and decide on grant recommendations for next year.

A donor-directed fund account can help clients separate the tax benefits of their philanthropy from their decisions about where to give. All cash or non-cash asset contributions received by December 31, including two years of pooled contributions, are eligible for a 2022 tax deduction. Customers who are unsure of which charities to support through their account may take time to develop a strategic giving plan and then begin recommending grants to charities in 2023 using the charitable dollars they set aside in 2022.

4. Donate cash from the sale of depreciated securities.

Clients can also identify certain securities that are currently priced below original cost (on a cost basis) and sell those securities at a loss. Through tax loss harvesting, capital losses can be used to offset capital gains and up to $3,000 of ordinary income. Your customers can then claim a charitable deduction if they make a cash donation from the proceeds of the sale.

5. Use a part-gift, part-sell strategy to offset the capital gains tax of rebalancing the investment portfolio at year-end.

Clients can use a half-give, half-sell strategy to reduce the tax impact of rebalancing. This is achieved by claiming a charitable deduction for the gift of appreciated assets in an amount that offsets capital gains tax on the sale of other appreciated assets.

6. Contribute to valuable private business interests or real estate.

These assets may have appreciated significantly over time for clients and may have retained more value than other assets in 2022. As with contributions of publicly traded securities, clients can generally eliminate tax on gains by capital they would otherwise have to pay if they sold the assets first and donated the proceeds. . They can claim a charitable deduction for their contributions.

Contributions of private business interests and real estate require special steps, including a qualified valuation of the assets. Donor-advised funds, such as Schwab Charitable, have experience facilitating these contributions and can guide you and your clients through the steps and timelines.

7. Satisfy a Required Minimum IRA Distribution (RMD) through a Qualified Charitable Distribution (QCD).

Whether itemizing deductions or taking the standard deduction, any client age 70.5 and older can direct up to $100,000 a year from their traditional IRAs to charities through of QCD.3 The QCD can be used to satisfy all or part of the client’s RMD for 2022 and is not considered taxable income for the client. Note that two people who submit tax returns with the status of married spouse are each entitled to an annual QCD of up to $100,000.

8. Use a charitable deduction to offset the tax payable on a retirement account withdrawal or conversion to a Roth IRA.

Clients with tax-deferred retirement accounts, such as traditional IRAs, can use charitable deductions to help offset the tax liability on the amount withdrawn and converted to a Roth IRA. The main advantages of a Roth IRA are tax-free growth, tax-free withdrawals (if holding period and age requirements are met), no annual RMD, and elimination tax for beneficiaries (depending on timing).

If your client is looking to offset the tax liability on a standard withdrawal, remind them that if they are no older than 59½, they may incur an early withdrawal penalty.

What you can do next for your customers

End-of-year deadlines always come sooner than expected. Advisors can help clients start planning now to achieve their goals.

Contributions must be received by charities by December 31 to be eligible for charitable deductions on 2022 tax returns and some non-cash asset contributions have review and processing times of several weeks or more.

Additionally, a donor wishing to make a 2022 QCD must submit the request by the end of November to ensure the donation is received by December 31.

Sam Kang is president and Caleb Lund is director, Charitable Strategies Group, both at Schwab Charitable, and Hayden Adams is director of tax planning and wealth management, Schwab Center for Financial Research.

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