Eight year-end charitable giving strategies

A woman's hands are holding a wrapped gift box on a wooden table.

Year-end deadlines are fast-approaching. Help clients give more while saving on 2022 taxes.

Key Points

  • Clients look to advisors for advice to maximize their charitable impact and minimize taxes before year-end. 

  • You can add value to your clients by sharing these tax-smart giving strategies for 2022.

  • Schwab Charitable offers various philanthropic resources to help you have more meaningful conversations with your clients and deepen those relationships.

2022 has presented Americans with the highest inflation in over 40 years, rising interest rates and frequent volatility in U.S. stocks and other asset classes.

Despite these conditions, donors have been steadfast in their support of charities and causes that are important to them. In the first six months of the year, Schwab Charitable donors granted $2.1 billion to charities, a 16% increase over the same period in 2021.

As an advisor, you are uniquely positioned to help clients meet their charitable goals through tax-smart giving. Charitable planning is an important topic for you to initiate, especially if your clients are facing taxable events in 2022 like rebalancing portfolios, experiencing a large income year or a windfall, or considering a Roth conversion.

Charitable contributions remain deductible for clients who itemize deductions when filing their tax returns. In 2022, annual deduction limits for gifts to public charities, including donor-advised funds, are 30% of adjusted gross income (AGI) for contributions of non-cash assets, if the assets were held more than one year, and 60% of AGI for contributions of cash. Contribution amounts in excess of these deduction limits may be carried over up to five subsequent tax years.

Given the current economic environment, here are eight strategies to explore with your clients to help them give with maximum charitable impact and minimize their taxes before year end.

How to engage clients and their families with tax-smart philanthropy

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1. Donate appreciated non-cash assets instead of cash.

One of the most effective strategies for giving with maximum charitable impact and minimizing taxes is to donate appreciated non-cash assets held longer than one year. You might be familiar with this concept, but many clients don't realize that it's more tax-efficient to give appreciated assets instead of cash. You can add value and reinforce your role as a trusted-advisor by showing your clients a tax-smart way to give. Clients who use this strategy generally can eliminate the capital gains tax they would otherwise incur if they sold the assets first and donated the proceeds.

The long-term capital gains tax is typically 15% or 20%, depending on the client’s income level. Eliminating this tax can increase the amount available for charities by up to 20% and increase the amount saved on taxes, as shown in option 2.

Shares of publicly traded stock XYZ were purchased five years ago for $5,000 and now have a fair market value of $50,000. Assuming a 15% federal capital gains tax rate, a donor selling the stock would realize appreciation of $45,000 and owe $6,750 in federal capital gains taxes, leaving $43,250 available for charitable giving and a tax deduction. If the donor donates the stock to charity, the donor has an additional $6,750 for charitable giving and a tax deduction and an additional $8,370 in tax savings.

In the fiscal year that ended June 30, 61% of contributions to Schwab Charitable donor-advised fund accounts were in the form of non-cash assets, including publicly traded securities, restricted stock and private business interests.1

Keep in mind that contributions must be received at charities by December 31 to qualify for charitable deductions on 2022 tax returns and some non-cash asset contributions have review and processing times spanning several weeks or longer.

2. Use both the standard deduction and itemized deductions by bunching two years of contributions into 2022.

Some clients may estimate that the total of their itemized deductions will be below the level of the standard deduction for 2022: $12,950 for single filers or $25,900 for married couples filing jointly.2

In that circumstance, it could be beneficial to combine or “bunch” their 2022 and 2023 charitable contributions into this year, itemize deductions on their 2022 tax returns, and take the standard deduction on their 2023 tax returns.

In addition to helping your client achieve a large charitable impact in 2022, a bunching strategy could produce a larger two-year deduction for them than two separate years of itemized deductions, depending on income level, tax filing status, and giving amounts each year. An example of bunching is shown in option 2.

A married couple annually has $23,000 of itemized deductions, including $10,000 in charitable donations. This is below the standard deduction amounts of $25,100 in 2021 and $25,900 in 2022. They could take a standard deduction each year and over two years claim $51,000 in standard deductions. A more tax-smart approach is to bunch two years of $10,000 charitable donations into 2021 for $33,000 of itemized deductions, take the $25,900 standard deduction in 2022, and have $58,900 of total deductions over two years.

3. Open a donor-advised fund account, make tax-deductible contributions before year end and decide on grant recommendations next year.

A donor-advised fund account may help clients separate the tax benefits of their philanthropy from their decisions about where to give. Any contributions of cash or non-cash assets received by December 31, including contributions that are bunched into the same year, are eligible for a 2022 tax deduction. Clients who are unsure about which charities to support through their account may take time to develop a strategic giving plan and then start recommending grants to charities in 2023 using the charitable dollars they set aside in 2022.

4. Donate cash from the sale of depreciated securities.

This is a strategy to keep in mind for clients who have securities in their portfolio that have lost value. They can sell those securities at a loss and use tax-loss harvesting to offset capital gains and up to $3,000 of ordinary income. Your clients can then claim a charitable deduction if they donate cash from the sale proceeds.

5. Use a part gift, part sale strategy to offset capital gains tax from investment portfolio rebalancing at year end.

This is a powerful conversation for you to potentially initiate whenever you are rebalancing your clients' portfolios or discussing strategies for concentrated positions. Help your clients understand that each time an appreciated position is sold in one of their taxable accounts, a taxable event occurs, but they can donate shares to eliminate the taxes they would owe.

Clients can utilize a part gift, part sale strategy to reduce the tax impact of rebalancing. This goal is accomplished by claiming a charitable deduction for donating appreciated assets in an amount that offsets the capital gains tax on selling other appreciated assets.

6. Contribute appreciated privately held business interests or real estate.

These assets may have appreciated significantly over time for clients and retained more value than other assets in 2022. As with contributions of publicly traded securities, clients generally can eliminate the capital gains tax they would otherwise incur if they sold the assets first and donated the proceeds. They can claim a charitable deduction for their contributions.

Contributions of privately held business interests and real estate require special steps, including a qualified appraisal of the assets. Donor-advised funds, such as Schwab Charitable, have experience facilitating these contributions and can guide you and your clients through the steps and timelines.

7. Satisfy an IRA Required Minimum Distribution (RMD) through a Qualified Charitable Distribution (QCD).

Regardless of whether your older clients itemize or take the standard deduction, any individuals over the age of 70½ can direct up to $100,000 per year from their traditional IRAs to operating charities through QCDs.3 The QCD can be used to satisfy all or part of the client’s RMD for 2022 and is not considered taxable income for the client. Note that married couples who file their tax return jointly can each qualify for an annual QCD of up to $100,000.

Note that clients who wish to make a 2022 QCD should submit the request by the end of November to ensure the gift is received by December 31.

8. Use a charitable deduction to offset the tax liability on a retirement account withdrawal or conversion to a Roth IRA.

Clients with tax-deferred retirement accounts, such as traditional IRAs, can use charitable deductions to help offset the tax liability on the amount withdrawn and converted to a Roth IRA. The primary benefits of a Roth IRA are tax-free growth, tax-free withdrawals (if holding period and age requirements are met), no annual RMD, and elimination of tax liability for beneficiaries (depending on the timing).

If your client is seeking to offset the tax liability on a standard withdrawal, remind them that if they aren’t over age 59½ they can incur an early withdrawal penalty.

What you can do next for your clients

Schwab Charitable offers a variety of resources to facilitate charitable conversations and help you deepen your relationships. 

Schwab Charitable