As the end of 2022 approaches, many Americans are considering their charitable commitments. Despite a bear market and inflation, American support for charitable causes, overall, remains strong. Many donors plan to increase their year-end donations to counter inflation's effects on their favorite charities. Others might be pondering their charitable giving strategy but still want to give.
In either case, knowing about purposeful and tax-smart giving strategies can help create clarity, encourage more generosity and foster a better relationship with your clients. Here are Charityvest's eight favorite year-end charitable giving strategies for 2022:
1. Donate Appreciated Assets
Donating long-term appreciated stocks, bonds, mutual funds and even complex assets directly to an eligible charity can increase tax savings significantly. Not only does the donor get a tax deduction for the full fair market value of the asset on the date of donation, but they also avoid paying capital gains tax on any gain associated with the asset's growth. If you or your clients give to charity and have long-term appreciated assets, this is the No. 1 strategy to use.
In light of these advantages, there are two specific ways this strategy might be used in 2022.
First, if you're rebalancing a client's investments portfolio, consider donating some of the most appreciated positions to charity in that process to offset the capital gains tax impact that will result from the rebalancing activity.
Second, if there are positions you don't want to change, but you're concerned about a potential recession and further market decline, consider using charitable giving to adjust the cost-basis (and future tax treatment) of your or your client's existing positions. You can donate a position to charity, realize the tax advantages, and immediately repurchase the position, lowering the cost-basis. If the market value decreases in the future, you may have the opportunity to deduct losses on that investment, whereas if it's currently appreciated, it's less probable you will have the opportunity to do so.
2. Use a Donor-Advised Fund
Donor-advised funds like Charityvest streamline giving on one tax-receipt, plus offer the flexibility to spread out donations over multiple years. They allow you or your clients to make tax-deductible contributions all in one tax year — to one place — and then recommend grants from the fund to charities over time. This is especially powerful when donating appreciated assets.
