December 31 marks the last day of the year, and you might have planned something exciting for New Year’s Eve. But it’s also the last day to make contributions to charities, if you plan to use those contributions as a deduction for the 2022 tax year. Here’s what you need to know.
Limits on charitable contributions. You can claim non-cash donations of up to 30 percent of adjusted gross income (AGI), provided the assets were held for at least one year, and up to 60 percent of AGI for cash donations. If you donate in excess of those limits, you can carry over the balance and use it as a tax deduction for up to five years in the future.
Use charitable contributions to avoid capital gains tax. If you sell an asset held for more than a year, you will owe capital gains tax on the profit. But if you donate the non-cash asset straight to charity, you can both eliminate capital gains taxes and increase the amount of your deduction for the charitable donation.
Buy more time to decide by utilizing a donor-advised fund. If you want to donate to charity but need more time to choose a worthy cause, make a contribution to a donor-advised fund before the end of the year. You can still claim the tax deduction for your donation, but now have more time to decide how to disburse the money to charities.
Use charitable contributions to offset the tax liability on required minimum distributions. When you must begin taking RMDs, a higher tax liability will be triggered due to this new income. You can direct some or all of that money to a Qualified Charitable Distribution instead, and the distribution will not count as taxable income.
Save proof of your donations. Keep a receipt for any donations you make to charity, or make all donations via credit card so that you can simply supply your statements. You won’t be able to claim any donations that you can’t prove, so save this information in your files in case of a future audit.
Work with your financial planner. Numerous strategies exist to help your charitable contributions carry maximum impact for both your chosen organization and your personal income tax deduction. Call us for more information on utilizing these strategies, so that we can help you decide upon the right strategy for you.
