Mindful Tax Advice for End-of-Year Giving
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Matthew A. Kaliff | SPECIAL TO THE CJN
Article reprinted with permission from Cleveland Jewish News
The year-end rush applies to many things: closing deals, shopping, travel and charitable giving. In fact, 30% of all donations each year are made in December. Don’t let the busy season keep you from being thoughtful about charitable contributions. Making tax-smart choices about how you donate can help make the most out of your contributions and other year-end planning.
Donate appreciated stocks. Contributing appreciated stocks owned more than one year has two tax advantages: it generates a charitable deduction for the value of the gift and saves capital gains tax on the value of the appreciation. This is far more tax-efficient than selling the asset and donating the proceeds. Capital gains tax savings is available even if you do not itemize deductions. Charitable organizations require extra time to evaluate and process contributions of closely held stock, partnership interests, real estate and other non-cash assets – act now if you intend to complete such gifts by Dec. 31.
Contribute to a donor advised fund for maximum flexibility. If you’re planning to make charitable donations over time, but seek a significant charitable deduction this year (e.g., due to a major income event), consider using a donor advised fund. Your contribution is deductible in 2022, but you may make charitable distributions from the DAF over time. Contributions of appreciated assets to a DAF also avoid capital gains tax.
Bunch two years of donations into one year. The vast majority of taxpayers use the standard deduction. However, if you are on the margin of the standard deduction, consider combining two years of donations in 2022, which could result in a higher total itemized deduction than the standard deduction. Then in 2023, you can again take the standard deduction. A donor advised fund makes this strategy easy to do.
Use the IRA qualified charitable distribution. If you are over 70½ years old, you may make direct transfers of up to $100,000 annually from a traditional IRA custodial account to qualified charities. The qualified charitable distribution amount is not included in your taxable income. If you are over age 72, the distribution may fulfill part or all of the required minimum distribution. Donor advised funds, private foundations and supporting organizations are not eligible for the qualified charitable distribution. Contact your IRA custodian about making a qualified charitable distribution.
Consider an Ohio scholarship granting organization. Contributions to a scholarship granting organization up to $750 per individual and $1,500 for couples are eligible for a dollar-for-dollar nonrefundable tax credit on the donor’s Ohio tax return. The Ohio Attorney General maintains an online list of certified scholarship granting organization.
Note upcoming changes to tax brackets and standard deductions. The IRS recently announced inflation-adjusted tax brackets and standard deductions for 2023. Generally, the tax brackets increased by about 7%. The higher thresholds could result in reduced tax bills for taxpayers who fall into lower tax brackets due to the changes. For married couples filing jointly, the 2023 standard deduction will increase to $27,700 from $25,900 in the current tax year. For single taxpayers and married individuals filing separately, the 2023 standard deduction will increase to $13,850 from $12,950.
Look into Inflation Reduction Act tax credits. The Inflation Reduction Act includes extended green energy incentives, such as tax credits for rooftop solar panels, insulation, electric vehicle purchases, and energy-efficient home improvements. Each of these incentives has complex rules, and some do not go into effect until 2023, so careful research is required.
Matthew A. Kaliff is senior director of endowment development and supporting foundations at the Jewish Federation of Cleveland in Beachwood. This is not legal, tax or financial advice and you should consult with a professional adviser before taking any action.