When the leaves start to change color and the weather gets colder, we know it is time to start thinking about the steps we can take before the end of the year to reduce our tax obligations.
As you consider potential end of the year actions that could lower your 2022 tax liability, Foundation suggests the following:
- Use appreciated assets (cash, real estate, stock or other investments) to make a charitable gift. As in previous years, gifts of appreciated assets (stock) remain a best practice. Such gifts not only provide a deduction to the donor but also avoid the capital gains tax. Conversely, built-in loss assets generally should be sold (generating a tax loss) with the resulting cash proceeds donated, if desired. Note that, as in previous years, up to $3,000 of capital losses may be used to offset ordinary income.
- Consider donating to a Donor Advised Fund (DAF) this year for maximum flexibility. If you are considering making a significant donations to charity over time but want a deduction today, consider adding funds to an existing DAF or opening a new DAF. It can be especially beneficial to donate appreciated property, because by doing so capital gains taxation with respect to the contributed assets is eliminated. Foundation operates DAFs and would be happy to assist you in opening one, if you do not already have one.
- Look into an IRA charitable rollover. The IRA charitable rollover is an attractive option because it can help satisfy the minimum distribution requirement without incurring income tax, even if you don’t itemize your deductions.
- Consider taking advantage of energy incentives in the Inflation Reduction Act. There are new and newly expanded and extended green energy incentives provided by the Inflation Reduction Act, including tax credits for rooftop solar panels, insulation, electric vehicle purchases, and energy efficient home improvements. Each of these incentives has somewhat complex rules, and some do not go into effect until 2023, so careful research is required.
- Consider accelerating noncharitable gifts. The unified estate/gift credit of $12.06 million is scheduled to automatically reduce to around $6 million, as indexed (after adjusting for inflation) beginning with transfers made in 2026. Accordingly, taxpayers who intend to make significant gifts (either during their lifetime or in the form of bequests) may want to consider accelerating some or all of those gifts early. As with any significant tax and charitable planning, it is always advisable to carefully consider potential changes in the context of your complete financial profile and to consult your tax advisor. We also recommend that you monitor the following legislative proposals as they will be considered by Congress later this year:
While many hoped this year would bring significant federal individual tax legislation, it doesn’t appear that will come to fruition. However, there are two legislative proposals that could be beneficial if passed in December 2022 or early 2023:
- Expansion of the universal charitable deduction for non-itemizers. Proposed legislation (S. 618 and H.R. 1704) seeks to expand the universal charitable deduction first enacted in the CARES Act, the COVID relief legislation passed in March 2020. The proposed legislation would allow a charitable deduction of up to one-third of the standard deduction available to non-itemizers (about $4,000 for individual filers and $8,000 for a joint return).
- Expansion of the IRA Charitable Rollover. Bipartisan legislation that has passed the House (the Securing Strong Retirement Act, H.R. 2954) has been introduced in the Senate (Enhancing American Retirement Now Act, S. 4808). It would make changes to the IRA Charitable Rollover regime, indexing the current $100,000 rollover amount for inflation and permitting one-time transfers to charitable remainder trusts and gift annuities of up to $50,000.
Although The Jewish Federation of Greater Atlanta does not provide tax advice, we are here to help you with your charitable giving. Please consult with a professional advisor before taking any action. If you have any questions, please contact jmendel@jewishatlanta.org.