The Best Way to Gift in 2022

Purpose and legacy have long been important considerations to older and more affluent clients. Given the devastating effects of the COVID-19 pandemic over the past two years, coupled with strong equity markets performance—often correlated with giving—these themes may be coming up far more often in beginning-of-year planning. 

There are many tax-advantaged ways to donate that are beneficial for you and your church. 

To best to maximize your intended charitable dollars for 2022, the best vehicles for doing so are all likely to facilitate non-cash gifting. Here are some of the best ways to give:

Stock Donations

You may already understand that the significant tax savings when you donate appreciated stock. This is because your capital gains tax (when selling stock you’ve owned for more than one year) may be as high as 20%, and you could be subject to an additional 3.8% surtax on net investment income. You can avoid these taxes by donating the stock instead. 

You can also save on their income taxes if you itemize deductions, because for appreciated long-term capital-gains property, you can take a deduction for the fair market value (FMV) of their donation. And finally, your donation goes farther, because nonprofit Internal Revenue Code Section 501(c)(3) organizations are tax-exempt and won’t have to pay capital gains taxes on the sale.

An added bonus: You can reset your cost basis, which positions you to enjoy more tax savings in the future. To make a stock donation, you will need to fill out a form from your stock brokerage to start the transaction.

Qualified Charitable Distributions

If you’re 72 years old and above who are required to take required minimum distributions (RMDs), making qualified charitable distributions (QCDs) is a smart way to give to charity while minimizing taxable income.

RMDs can be a headache for some retirees. They’re required to withdraw money that they don’t need for living expenses (and must pay tax on it in the process). The exact value of a client’s RMD can be anywhere from 4% to 53% of their account balance. That’s where QCDs come in.

Making a QCD can count toward your RMD for the year. This allows you to fulfill your RMD requirement by donating all or part of it, all while avoiding income tax on the withdrawal. Anyone who’s  subject to RMDs can make as many QCDs as they want, up to $100,000 a year; however, contributions made to an IRA after 70.5 can reduce the amount allowed to be claimed as a QCD. QCDs are an increasingly popular and powerful tax-saving tool because they can benefit all clients, regardless of whether they itemize deductions or take the standard deduction. To make a QCD, you should submit a request to your individual retirement account custodian.

Donor-Advised Funds

Donor-advised funds (DAFs) are private investment accounts established by an individual and managed by a third party to benefit one or more nonprofits. Assets invested in a DAF can include cash, stocks and even cryptocurrency. I

DAFs are a great option for if you want to make thoughtful gifts over a long period of time while also enjoying tax benefits. Any assets invested in a DAF can qualify for an income tax deduction for that tax year under the applicable deductibility rules. According to National Philanthropic Trust, there were more than 1 million DAF accounts in 2020, holding nearly $160 billion in assets. Those numbers are only expected to grow.

There were recent legislative efforts made around DAFs to limit a donor’s advisory rights and the time horizon for distribution of funds, which would likely have curtailed gifts made to DAFs. But the Accelerating Charitable Efforts (ACE) Act hasn’t yet passed in Congress, and for now, those feared limitations shouldn’t deter a client interested in funding a DAF.

Cryptocurrency Donations

Many people overlook the fact that they need to pay capital gains tax on their crypto earnings, just like they would when they sell appreciated stock. One way to offset these taxes (or avoid them altogether) is to donate their crypto to a nonprofit.

Crypto donations have the same tax benefits as charitable stock gifts: You can avoid capital gains tax and can take a deduction for the FMV of your donation (if they itemize deductions, and under the general deductibility rules).

There are thousands of cryptocurrencies (coins) currently in existence, and new ones are created every day. Charities that support crypto donations may only accept larger mainstream coins, like bitcoin and ethereum. Nonprofits that allow crypto donations will often have a platform on (or accessible from) their website where your clients can complete the transfer. There are also third-party sites that let individuals easily donate to any charity.