Maximizing your Charitable Contribution Deduction
For individuals who itemize, it is important to note that the enhanced contribution limits imposed by the CARES Act, which lifted the existing cap on cash contributions to 100 percent of adjusted gross income (AGI) for individuals and 25 percent of the corporation’s taxable income for corporations, have expired. For 2022, Donors may claim a tax deduction limit for contributions of cash of 60% (for non-cash gifts up to 30%) of one’s AGI. Donation amounts in excess of these limits may be carried over for up to five tax years. For example, consider an individual who has $10 million of AGI and makes a $10 million cash contribution to a public charity in 2022. The income tax deduction will be limited to $6,000,000, and $4,000,000 in charitable contributions can be carried forward for the next 5 years. In 2021, the deduction would have been the full $10,000,000.
In addition, some donors may find that the total of their itemized deductions for 2022 will be slightly below the level of the standard deduction. In that circumstance, it could be beneficial to combine or “bunch” 2022 and 2023 charitable contributions into one year (2022), itemize deductions on their 2022 tax returns, and take the standard deduction on the 2023 tax return.
2022 Year-End Tax Planning Resources
Withum’s Year-End Tax Planning Resource Center is a one-stop-shop for annual tax planning tips for individuals and businesses, legislative and regulatory changes, COVID impacts and other tax-saving opportunities.
In addition to achieving a large charitable impact in 2022, this strategy could produce a larger two-year deduction than two separate years of itemized deductions, depending on income level, tax filing status, and giving amounts each year. With proper planning, there is still time left in 2022 to take advantage of this benefit and aggregate contributions. Let Withum’s Private Client Services Team help you today.
Reach out to Withum’s Tax Services Team to discuss your individual charitable contributions as year-end approaches.
Disclaimer: No action should be taken without advice from a member of Withum’s Tax Services Team because tax law changes frequently, which can have a significant impact on this guide and your specific planning possibilities.