Given the recent completion of the Pennsylvania Legislature’s 2022 session, it’s an excellent time to consider tax law changes and how they impact tax-wise charitable giving strategies. While the 2022 session resulted in several changes in state tax law, many remain entirely unchanged regarding charitable giving. Charitable giving is a powerful tool for your tax strategy and financial planning.
Maximize Charitable Deductions The Tax Cuts and Jobs Act of 2017 brought significant changes to the tax code and has resulted in fewer Americans itemizing deductions. For these donors, a strategy called “bunching” can offer a tax-wise solution. Bunching encourages donors who give to charitable causes annually to make a single gift to a new or existing donor-advised that totals the amount they would give in future years. From a tax planning perspective, making multiple years’ worth of contributions in a single year allows one to exceed the standard deduction and opens the door to the tax benefits accompanying itemizing. Bunching is also a winning strategy as donors seek to provide consistent annual support to the causes they care about. Because the contribution is made to a donor-advised fund, the donor can spread their giving over time and maintain their annual levels of support to their favorite charitable organizations.
Avoid Capital Gains Taxes Donating appreciated stock is a win-win if you seek a tax-wise giving strategy. The maximum federal capital gains tax rate is 20 percent on long-term holdings. Still, if that same security is donated, there is no capital gain to pay, and the asset’s fair market value can be deducted from income taxes.
Take Advantage of the IRA Charitable Rollover If you are 70 ½ and older, using an individual retirement account (IRA) to support charitable giving is a simple, tax-wise tool to maximize the use of required minimum distributions (RMD) in support of the causes you care about – tax-free.
For donors who reach the mandatory distribution age of 72, up to $100,000 per year of IRA distributions can qualify for the IRA Charitable Rollover, removing the asset from ordinary income. While RMDs cannot support Donor-Advised Funds, they can be used to set up a scholarship fund, a field of interest fund, or a fund designated for one or more nonprofits at the Foundation for Delaware County. The benefits are enormous!
As you consider opportunities to incorporate charitable giving strategies into your tax planning, contact Monika Collins, mcollins@delcofoundation.org, to learn how we can help.
