Make Charitable Donations by End of Year

Financial tips

Make Charitable Donations by End of Year

Posted by Infinite Wealth Advisors, LLC
6 months ago | December 5, 2022

Life is getting pretty hectic for a lot of us right now, but that doesn’t mean you should forget about tax planning. In fact, the holiday season is the perfect time to earn one particular type of tax deduction, by making contributions to your favorite charities. But you must make these donations by the end of the year if you want to count them on your 2022 tax return next spring.

Good news: You can earn a huge deduction! If you want to donate a significant amount to your favorite organizations while earning a sizable tax deduction, we have great news. You can deduct up to 60 percent of your adjusted gross income via cash donations, or up to 30 percent of AGI with non-cash gifts to charity.

The charitable contribution deduction can be a backdoor to reducing capital gains tax. Any time you sell assets you’ve held for more than a year, capital gains tax can apply. But if you donate that non-cash asset straight to your charity of choice, you can avoid capital gains tax while also earning a deduction for the charitable contribution.

Consider a donor-advised fund if you can’t decide upon a charity right now. Charitable contributions must be made by December 31 in order to be counted as a deduction on 2022 tax returns. But if you can’t decide on a charity right now, setting up a donor-advised fund allows you to claim the deduction while taking more time to choose a worthy cause.

Your charitable donation can offset taxes on required minimum distributions (RMDs). Let’s say you’re required to begin distributions from your retirement account, but you’re not excited about the increase in taxable income. One solution is to direct part or all of your distributions to a Qualified Charitable Distribution. You can give a significant gift to charity while avoiding income taxes on the money.

Save proof of your charitable donations. Remember that income tax deductions must be proven if you’re ever audited. So save your receipts, card statements, or other proof of your donations just in case.

If you have questions about financial planning or the best way to maximize the impact of charitable contributions, give us a call. We can help you make a difference to your favorite organizations while also making a difference on your tax return.

 

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