Year-End Charitable Donations

December 29, 2022

Charitable Donations

To receive a charitable donation write-off in 2022, you must itemize deductions on your tax return. If you wish to gift investments to your favorite charities, consider several important strategies.

First, do not gift investments in taxable brokerage accounts currently worth less than what you paid for them. Instead, sell the shares and claim the resulting capital loss on your tax return. Then, gift the cash proceeds from the sale to the charity. In addition, if you itemize, you can claim a full tax-saving charitable deduction.

Conversely, appreciated securities should be donated directly to charity. If you itemize, donations of publicly traded shares you have owned for over a year result in charitable deductions equal to the full current market value of the shares at the time the gift is made. In addition, if you donate appreciated stock, you escape any capital gains tax on those shares. Meanwhile, the tax-exempt charity can sell the donated shares without owing any federal income tax.

Qualified Charitable Donations (QCDs) from Your IRA

IRA owners and beneficiaries who have reached age 70½ are permitted to make cash donations totaling up to $100,000 annually to IRS-approved public charities directly out of their IRAs. You do not owe income tax on these qualified charitable distributions, but you also do not receive an itemized charitable contribution deduction.

The upside is the tax-free treatment of QCDs equates to an immediate 100% federal income tax deduction without having to worry about restrictions which can potentially delay itemized charitable write-offs. Contact your tax advisor if you want to hear about the full benefits of QCDs. If you are interested in taking advantage of this strategy for 2022, you will need to arrange with your IRA trustee or custodian for money to be paid out to one or more qualifying charities before year end.

Giving to Loved Ones

The principles for tax-smart gifts to charities also apply to gifts to family members and loved ones. You should sell investments that are currently worth less than what you paid for them and claim the resulting tax-saving capital losses. Then, give the cash proceeds from the sale to your children, grandchildren, or other loved ones.

Likewise, you should give appreciated stock directly to those you want to give gifts. When they sell the shares, they will pay a lower tax rate than you would if they are in a lower tax bracket.  In 2022, the amount you can give to one person without gift tax implications is $16,000 per recipient (increasing to $17,000 in 2023). The annual gift exclusion is available to each taxpayer. So, if you are married and make a joint gift with your spouse, the exclusion amount is doubled to $32,000 per recipient for 2022.

Source: https://www.irs.gov/businesses/small-businesses-self-employed/whats-new-estate-and-gift-tax#Form%20706%20Changes

This material is being provided for informational purposes only and nothing herein constitutes investment, legal, accounting or tax advice, or a recommendation to buy, sell or hold a security. Do not act or rely upon the information and advice given in this publication without seeking the services of competent and professional legal, tax, or accounting counsel. Publication and distribution of this article is not intended to create, and the information contained herein does not constitute, an attorney-client relationship. All information is current as of the date of herein and is subject to change without notice. The information has been obtained from sources we believe to be reliable; however, no guarantee is made or implied with respect to its accuracy, timeliness, or completeness. Acumen Wealth Advisors, LLC® is a Registered Investment Adviser. Advisory services are only offered to clients or prospective clients where Acumen Wealth Advisors, LLC® and its representatives are properly licensed or exempt from licensure. Past performance is no guarantee of future returns. Investing involves risk and possible loss of principal capital. No advice may be rendered by Acumen Wealth Advisors, LLC® unless a client service agreement is in place.

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