<img height="1" width="1" alt="" style="display:none" src="https://www.facebook.com/tr?ev=6038855580069&amp;cd[value]=0.00&amp;cd[currency]=INR&amp;noscript=1">

Thought Leadership in Action

Tax Planning in the Season of Giving

The holiday season is a time for giving. And while helping others is its own reward, people can easily overlook charitable deductions and other incentives they’re entitled to during tax season. You can help your clients take advantage of these opportunities and avoid common mistakes.

The 2022 tax year features rule changes from the 2021 tax year that affect how charitable tax deductions are handled. In 2021, individuals could deduct $300 in charitable deductions without itemization, but that provision has been eliminated. Additionally, the charitable deduction limit was 100% of an individual’s annual gross income (AGI) in 2021. For 2022, however, contributions are limited to 60% AGI for cash contributions held more than one year and 30% of AGI for non-cash contributions.

Advisors should also educate clients on when and where they need receipts for their deductible donations. This year, no receipt is required for cash contributions under $250 or non-cash contributions of $500 or less. Written confirmation is required for larger cash donations, while an appraisal is required for larger non-cash donations your clients wish to claim.


Non-Cash Deductions

Advise your clients to consider how they can donate appreciated non-cash assets. This can be a mutually beneficial strategy for donors and recipients. These donations provide valuable support to those in need while minimizing or eliminating the gift-giver’s tax obligations, such as capital gains taxes. Stock donations have considerable benefits over cash contributions.

The value of stock donations is equal to the fair market value (FMV) of the stock at the time of donation, which could have grown since the original purchase. Stock donations can create great impact for the recipient with less investment from the donor while also minimizing capital gains taxes, which could be as high as 20%.


Retirement Account Withdrawals

For clients looking to offset tax liabilities for retirement accounts, charitable deductions can be a useful tool. Individuals aged 70.5 or older can contribute up to $100,000 tax-free from individual retirement arrangements (IRAs) through qualified charitable distributions (QCDs). This approach can reduce taxable income and estate, as well as the tax liabilities of IRA beneficiaries.

Similarly, people 59.5 or older who are itemizing their deductions for 2022 can use charitable donations to offset taxable withdrawals from retirement accounts.  

Additional Considerations

Clients with total itemized deductions for 2022 that are lower than the standard deduction could benefit from leverage deduction rules or a bunching strategy, according to The Signatry. By bunching 2022 and 2023 charitable contributions this year through a donor advised fund, your client’s 2022 tax return can include itemized deductions, followed by the standard deduction on 2023 taxes. This enables a larger immediate charitable impact. as well as a more significant deduction than clients would realize from two separate years of itemized deductions.

These deductions are just a few examples of potential savings. Your clients might be eligible for many other types of deductions depending on their unique tax situations. Help your clients this holiday season to optimize their year-end giving while reducing their tax burden.



Like what you see?

Subscribe to our Ebix blog or curate your subscriptions for the most relevant content and never miss a single article! Industry driven thought leadership delivered straight to your inbox with the click of a button. What could be easier?