8 Year-End Strategies for Charitable Giving in 2022

Hey everyone, welcome to We're Talking Money. I'm Phil Clark with OmniStar Financial Group. Thanks for tuning in.

Today we're getting so close to the end of 2022, so we've got a special show with eight charitable giving strategies that are going to help you make the most of your giving and save you some money, especially on taxes.

Now, everybody knows that when you make a charitable contribution it's tax deductible, but wait a minute. First, unless you itemize, you don't get to deduct everything that you give. So if your deductions, or rather your gifts, are below the standard deduction, not going to matter.

So what do you need to know? If you start making gifts, you can do 30 of your adjusted gross income with appreciated assets. If you're giving a cash asset, you can do up to 60 percent of your adjusted gross income. So you've got to know those things. All of that's going to play a role in how these strategies work best for you.

So strategy number one, it's donating appreciated non-cash assets, and those for most people are stocks. Capital gains are going to run anywhere from 15 to 20 percent. Instead of you paying those capital gain taxes, which would happen if you sold the stock, why not give them the stock? Let them sell the stock, they avoid the tax, and that means you get to give your charity 20 percent more and you avoided the capital gain tax.

So strategy number two is utilizing both the standard deduction and itemizing your deductions. Some donors may estimate that the total of their itemized deductions are going to come in below what the standard deduction is for 2022, and for single filers that's twelve thousand nine hundred fifty dollars. If you're married filing jointly, that number goes all the way up to twenty five thousand nine hundred dollars. To itemize, you have to be above those amounts as a single or joint filer.

Now, bunching becomes very important. So if you're going to give every year, if you know that's what you plan to do or want to do, and you can afford to take several years worth of your gifting and bunch them, so to speak, into this year, we can take all of those, deduct them now, give you the benefit of itemizing, and you can continue using your standard deduction in subsequent years.

Strategy number three is a Donor advised fund. So consider using this Donor advised fund, or a DAF, if you want to make contributions before year-end but you're not quite sure where you want those contributions to go or who they would benefit. So donors can use a Donor advised fund with literally any amount of money.

Now, you can't deduct all of that money if you don't have enough income, but you can make the donation and you can take a deduction now. So if you put 50 000 in now, you get a fifty thousand dollar deduction, and guess what, you can now itemize. And then you don't have to worry about making a decision in terms of where to give the money or who gets the money before year-end. All you have to do is get the money in the Donor advised fund before 12 31 and you're home free. We can make those decisions on who gets the money next year and beyond.

Okay, strategy number four, it's donating cash from the sale of depreciated securities. If you use something called loss harvesting, we can sell those securities, take advantage of the loss, and that helps you lower your taxes as it relates to offsetting capital gains. If you do that and now you want to gift those proceeds, you can deduct those proceeds as a gift to your favorite charity or to your Donor advised fund.

Harvesting losses helps you offset other capital gains. So if you've benefited from other stocks that you're selling, now you have gains, you can help offset that by harvesting losses in securities that haven't performed as well. And if you're so inclined, take those depreciated proceeds, hand those off to the charity, and you get a little bit of a double tax savings.

Okay, so strategy number five, this one's more of a hybrid. This uses a part gift, part sale strategy to offset capital gains when you rebalance your portfolio at year-end. Rebalancing involves selling investments that have exceeded the called for or target allocation and buying assets that have fallen below their target allocation, and when this happens, capital gains likely become part of the picture.

So donors then use a part gift, part sale strategy to reduce the tax impact of that rebalancing. You make a charitable donation in an amount that will simply offset the capital gains that occurred when the rebalancing was completed.

So strategy number six, contributing appreciated privately held business interest or real estate. Now, we talked about appreciated stocks, but we didn't talk about privately held businesses or real estate. Privately held businesses can appreciate exponentially, and so there can be incredible gains in your privately held business, and you might be ready to divest of some of those securities or businesses. And you might have real estate with tremendous gains, maybe real estate that you've held for decades. If that's the case, these are also assets that can be gifted, and you avoid all capital gain tax on these, which makes the gift that much more valuable.

Strategy number seven is satisfying your IRA required minimum distribution through what we call a QCD, or a qualified charitable distribution. Now, this is only for people that have reached age 70 and a half. If you're itemizing or not doesn't matter, but if you're 70 and a half years old, you can direct up to one hundred thousand dollars per year from your IRA to an operating charity through the QCD.

The QCD can also be used to satisfy your required minimum distribution, and if you're over 72 years old, you have a required minimum distribution. Here's a way for you to give up to a hundred thousand dollars and satisfy your RMD without it ever hitting your tax return, as long as it goes from your IRA directly to the charitable institution. And if you're married, guess what, you and your spouse can take advantage of a hundred thousand each, so that's two hundred thousand per household for married couples.

Okay, so strategy number eight, it's using charitable deductions to help offset the tax liability that might occur if you convert your IRA to a Roth IRA. That's an important tool right now because everybody is talking about converting from traditional IRAs to Roth IRAs.

Why would I do that? Well, first, it's because a Roth IRA is tax free in its growth and is tax-free in the distribution. But you're going to pay tax if you transition from your IRA to the Roth IRA. So how do you get around that tax? Well, you don't. But here's where charity comes in again.

If you're charitably inclined, you're going to convert from an IRA to a Roth IRA. All we have to do is back into the amount of a charitable donation that's required to offset that tax, and voila, here you are, out of an IRA into a Roth IRA, no more taxes to pay, and your charitable organization benefited in a huge way. Roth conversions are a big deal right now. Huge opportunity to save some tax and make a meaningful gift to your charity.

Okay, so that's our eight strong strategies for year-end charitable planning. Now, what can you do next? Well, it's simply this: you got to start planning. We only have a few days left until year-end, but plenty of time for you to put some of these strategies in play.

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