Your Guide to 2023 Year-End Charitable Giving
by Rev. Bill Gruenewald
As the year comes to a close, many of us are thinking about our year-end giving. This year has brought financial challenges for many people, but many charitable strategies can help when tax time rolls around. Now is a great time to review some charitable giving ideas and see if any make sense to implement before 2023 ends, especially as you think about supporting your church or other Baptist cause.
Charitable Deduction Limit
Cash donations can be up to 60% of AGI if you itemize deductions. However, contributions of appreciated non-cash assets held for over one year are limited to 30% of AGI.
Make a regular donation
The easiest way to make a gift is to simply write a check or donate online (if your church has this capability). If your check is postmarked by December 31 or your online donation is processed by December 31 (note that the time of day may be important), you can take a charitable deduction for the gift, depending on your particular tax situation.
For 2023, the standard deduction is $13,850 for individuals and $27,700 for couples. Overall, this is great for taxpayers, but it is harder to deduct charitable contributions if your overall deductions do not exceed the standard deduction.
One strategy around this issue is to “batch” your charitable contributions, meaning that you combine this year’s gifts with what you anticipate giving next year and make both contributions in 2023. You’re basically loading up two years of gifts in one tax year. Thus, you have a higher charitable amount to apply toward your deductions in 2023, which may yield better results than simply taking the standard deduction.
Give Gifts of Appreciated Assets
Many people find themselves holding stocks, bonds, mutual funds, or real estate that have significantly increased in value. Selling these assets may create substantial capital gains for the owner.
However, rather than increasing your tax burden, you can donate the long-term appreciated asset to your favorite Baptist cause (i.e., assets held for more than one year that trigger a long-term capital gain). You get a deduction for the asset’s full market value, and the charity recognizes no gains when it sells the asset. Win-win!
Required Minimum Distribution (RMD) / Qualified Charitable Distribution (QCD)
For those with traditional IRA accounts, if you are aged 70 ½ or older and have other sources of income to draw upon, you can direct your IRA custodian to transfer a portion of your retirement assets up to $100,000 to a public charity as a qualified charitable distribution (QCD). The donation counts as part of your Required Minimum Distribution but is not included in your taxable income.
NEW for 2023
The Secure Act 2.0 allows individuals to direct one-time up to $50,000 QCD to a Charitable Remainder Trust or a Charitable Gift Annuity.
Donate cash from the sale of depreciated securities.
Taxpayers benefit from recognizing losses rather than gifting depreciated securities. Consider harvesting tax losses from your portfolio and donating the cash proceeds. In this way, you can recognize a tax loss that can offset any capital gains for the year or up to $3,000 of your ordinary income. You will also receive a charitable deduction for your cash donation. Tax-loss harvesting may be a popular strategy in 2023 as taxpayers seek to reduce their taxable income.
Establish a Charitable Trust
A charitable remainder trust is an irrevocable giving vehicle funded with a gift of cash or non-cash assets. Income beneficiaries receive payments from the trust for a term of years or life, and a public charity receives the remaining assets at the end of the term. The donor may claim a charitable deduction if they itemize in the year the trust is funded, and the deduction amount is typically based on the present value of the assets that will eventually go to the named charity.
A charitable lead trust is the reverse of a charitable remainder trust in that a public charity first receives an income stream from the trust for a term of years. The irrevocable giving vehicle is funded with a gift of cash or non-cash assets. Benefits to the individual who funds the trust will vary depending on the trust structure. After the income stream period ends, the trust’s remaining assets are distributed to an individual or multiple people.
Increase your charitable giving when you expect higher annual income.
Charitable donations are deductible and may reduce your taxable income. Consider increasing your charitable giving in years where your income is expected to be higher due to a liquidity event, stock options, capital gains, or Roth conversions.
Remember, when the ball drops on December 31, you will lose the ability to take advantage of these strategies for 2023. If any of these ideas interest you, begin the process now to ensure you allow plenty of time for the process to be completed by year-end.
The Tennessee Baptist Foundation is ready to answer any questions about these year-end tax strategies. Contact us any time at 615-371-2029. We would love to help.
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You can reach us via phone at (615) 371-2029 or fill out this form.
Please note that the advice offered in this article is not intended to be construed as tax, legal, or accounting advice. This material has been prepared for general informational purposes only and is not intended to provide, and should not be relied on for, tax, legal, or accounting advice for the reader. You should consult your own tax, legal, and accounting advisors before engaging in any transaction.