5 steps to take now to cut your 2022 tax liability: Give to charity
High inflation, rising interest rates, and a downturn in the stock market have all made for an eventful year. While there isn’t much you can do to change any of these financial aspects, you can influence how much your federal tax bill will be for the year. So here is the fourth of five pre-year-end planning ideas that could help you lower your tax obligation for 2022 or in the future: giving to charity.
Giving to charity
For 2022, the AGI ceiling for tax-deductible financial donations has gone back to 60% of AGI. But the opportunity to save more money by giving to charity is still there. For instance, if you itemize your deductions, you can deduct the fair market value of appreciated assets you’ve owned for at least a year. That would allow you to avoid paying income tax on the amount of the appreciation.
An IRA-qualified charitable distribution (QCD) may offer tax advantages. To exempt the transferred funds from their gross income, taxpayers aged 70.5 or older may directly transfer up to $100,000 per year from their IRAs to a qualifying charity. (Note that transfers to a sponsoring organization or donor-advised fund are not eligible.) In addition, a QCD might count toward your RMDs if you are 72 years old or older.
Consider starting a donor-advised fund. Then, you can set it up in 2022 and contribute assets to claim a deduction for this year. Still, you can wait until 2023 to choose the beneficiary charity and make the payment.
Taking action now to cut your 2022 tax liability
Many people have had difficult financial years and worry that the economy will last into the following year. But one thing is sure: everyone wants to pay less in taxes. So to get help with your year-end tax planning, contact our RRBB accountants and advisors today. Keep an eye out for the next two tips and catch up with the last two: converting your traditional IRA to a Roth IRA and deferring or accelerating income and deductions.
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