October 19, 2022
’Tis the Season to Think About Year-End Charitable Giving
With the holiday season quickly approaching, it’s a good time to consider your charitable giving plan through the end of the year. We recommend the following steps:
- Review your giving: Which organizations have you supported so far this year and in past years? In which areas have you focused your giving? Are there gaps you’d like to fill before year-end?
- Coordinate charitable giving with financial and tax planning, especially if this has been a high-income year, perhaps from the sale of a business or a Roth IRA conversion.
- Talk to your family and involve them in giving. Giving together provides opportunities to strengthen the bond among family members, work together for a common purpose, teach financial stewardship and pass down family values to future generations.
Meeting the challenges
The past year has seen the world continue to adapt to the COVID-19 pandemic, with easing restrictions amid expanded access to vaccines and treatments in many areas. Still, the pandemic remains a concern for many — particularly populations that are already vulnerable due to underlying health conditions and inequities in access to quality, affordable healthcare. 2022 has also presented new challenges, from the war and resulting humanitarian crisis in Ukraine to natural disasters of increasing frequency and intensity. Americans are also grappling with the economic consequences of high inflation and an unusual market environment in which both equities and fixed income have declined.
Philanthropy has a major role to play in alleviating these challenges, and data suggest Americans are continuing to respond generously. According to the Giving USA 2022 report, charitable giving reached $484.85 billion in 2021, a year-over-year increase of 4.0% in current dollars and a very slight decline when adjusted for inflation. Even so, 2021 was the second-highest year for giving on record in inflation-adjusted terms.1
Types of charitable gifts
With just a couple of months left in 2022, you may be thinking about how to approach your charitable giving plan. Here we highlight some opportunities for charitable giving between now and December 31 that may help you achieve your charitable goals and maximize your income tax savings.
“Checkbook philanthropy,” or outright gifts of cash, is a simple way to make a charitable donation. In particular, making a cash donation in lieu of tangible holiday gifts can be a thoughtful approach to charitable giving.
Highly appreciated securities
Often, there are significant tax benefits to giving assets other than cash. By donating your highly appreciated securities directly to a charity, you may avoid realizing the built-in capital gain and be able to take a charitable deduction for the amount donated. Gifts of appreciated securities and other assets held for at least one year generally qualify for an income tax deduction based on the asset’s fair market value. Further, there is no limit on the number of recipients.
A few notes on highly appreciated securities:
- Be cautious of dividend reinvestments if donating an entire holding.
- Consider avoiding partnership interests, particularly master limited partnerships.
- If donating a large concentration of stock in a small company, be aware of liquidation consequences.
Qualified charitable distributions
After reaching age 70½, you may make a qualified charitable distribution (QCD) of up to $100,000 per year from your IRA to a public charity other than a donor-advised fund (DAF), private foundation, supporting organization or charitable remainder trust. The amount of the QCD is excluded from your taxable income and is not deductible.
The distribution must go directly to charity. Further, the IRA’s trustee must send your donation directly from the IRA to qualify, and no goods or services can be received in exchange for the donation. Each QCD reduces the amount of the required minimum distribution that is taxable to you, and by lowering your adjusted gross income (AGI) you may become eligible for other deductions that otherwise would have been phased out.
DAFs allow donors to maximize the tax efficiency of their charitable giving by generating a tax deduction when it’s most valuable to the donor, then allowing for distributions out of the DAF to charities over years to come. For example, a high earner on the verge of retirement can fund a DAF this year, lock in an income tax deduction up to the full amount of the DAF contribution, and use the DAF to support the donor’s favorite charities throughout retirement. As with direct gifts, DAFs can be easily funded with appreciated assets for even greater tax savings, and DAFs can accept complex assets like cryptocurrency, real estate and private business interests that many charities are not equipped to accept directly. Families often use DAFs to organize their charitable giving and to engage the next generation.
Establishing a private family foundation is a good way to establish a long-term giving mission for families looking to make substantial gifts to charity. Like a DAF, the donor can receive a tax deduction for the gift in the year donated. Foundations come with a good deal of administration, however, so they are best suited for families who wish to create a substantial charitable legacy.
Employer matching gifts
Many employers have charitable gift matching programs. Employer matching gifts are a great way to supplement your gifts to charities of your choice at no cost to you. As with many charitable giving techniques, individual circumstances must be taken into consideration and may dictate eligibility for matching gifts.
Maximizing year-end giving: Tax incentives
In 2022, the standard deduction is $12,950 for single filers and for married filing separately, and $25,900 for joint filers and $19,400 for head of household (slightly higher deductions for those over age 65), which can have the effect of limiting or eliminating the charitable deduction for those who make modest annual charitable gifts. For 2023, those amounts are single/married filing separately, $13,850; married filing jointly, $27,700; and head of household, $20,800.
Bunching charitable gifts
To preserve the income tax benefits of giving to charity, even in light of larger standard deductions, donors could bunch their donations. Bunching means taking what would normally be multiple years’ worth of donations and giving them all to charity in a single tax year, resulting in one or more donations large enough for a donor to itemize on their tax return. Some donors bunch direct donations to their favorite charities, while others may opt to bunch through a DAF.
If you have any questions, please reach out to your Glenmede Relationship Manager or email PhilanthropicAdvisory@Glenmede.com.
1 Giving USA 2022. The Annual Report on Philanthropy for the Year 2021. Researched and written by IUPUI Lilly Family School of Philanthropy.
This presentation is intended to provide a review of issues or topics of possible interest to Glenmede Trust Company clients and friends and is not intended as investment, tax or legal advice. It contains Glenmede’s opinions, which may change after the date of publication. Information gathered from third-party sources is assumed reliable but is not guaranteed. No outcome, including performance or tax consequences, is guaranteed, due to various risks and uncertainties. Clients are encouraged to discuss anything they see here of interest with their tax advisor, attorney or Glenmede Relationship Manager.