The end of the year is nearly here, which means the season of giving is upon us. Have you determined your charitable giving strategy for 2022? Being intentional in your giving benefits your charities of choice and may help manage your taxable income.
To make the most of your giving strategy, first, you must determine who will be the recipient(s) of your donations. The Internal Revenue Service (IRS) only gives charitable giving tax exemptions for donations made to non-profit 501(c)(3) charities or private foundations. So before signing anything over, make sure your desired organization qualifies.1
- You can only take a charitable giving tax deduction if you choose to itemize your deductions. You cannot use charitable contributions if you plan on taking the standard deduction ($12,950 or $25,900 for joint filers.).
- Every family’s situation is unique, so make sure to consult with a tax or accounting professional before adjusting or committing to a new charitable giving strategy. Tax rules are constantly changing, and there is a possibility that giving strategies may need to be adjusted as laws change.
If you wish to donate a substantial amount to charity, keep in mind that the IRS limits how much you’re able to deduct from your taxes.
- An overall limitation of 50 percent of an individual’s contribution base generally applies to total charitable contribution deductions claimed by the individual for the tax year. An individual’s contribution base is the taxpayer’s adjusted gross income (AGI), computed without regard to the charitable deduction and any net operating loss carrybacks.
- The percentage limit is increased to 60 percent of an individual’s contribution base for cash contributions made to public charities in 2018 through 2025.
- Contributions of capital gain property to public charities are generally limited to 30 percent of the individual donor’s contribution base. Contributions of capital gain property to semi-public charities and to private charities are limited to 20 percent of the contribution base.
Charitable giving plays an important role for many who wish to align their gifting strategies with their overall values. The information shared here is just the tip of the iceberg when it comes to formalizing your giving strategy. Before the rush of the holiday season comes, feel free to grab time on our calendar or contact your Azzad advisor directly so we can discuss your approach.
1. IRS.gov, 2022