As we approach the end of 2022, there are some key considerations to keep in mind for your donors who plan to send in a year-end gift. After all the changes made in 2020 and 2021, with pandemic-related expansions for charitable income tax deductions, 2022 returns us to the rules that existed before COVID hit.
Here are six factors to remember for your year-end donor communications:
In order for donors’ charitable giving to be tax deductible for 2022 taxes, all gifts must be received by December 31. Here’s how you can help your donors to ensure that their gift is received before the end of the year:
- The gift must be received by December 31. If the donor hand-delivers it to someone from the charity, they’re good. But beyond that, it can get more complicated.
- Many people today use private delivery services, like FedEx, as an alternative to the U.S. Postal Service. That may be the case, but the IRS uses the “Mailbox Rule” when determining the date of the gift. So, if your donor mails their gift through USPS and postmarks it by December 31, it is considered “delivered” on that date. However, if a private carrier delivers the gift, it is only considered delivered on the date it arrives. So, we recommend advising your donors to mail their gift through the good old U.S. Postal Service, if they mail it at all.
- A long time ago, stock was owned in the form of paper certificates. That’s the way most people made their gifts, by mailing the certificates and mailing a separate transfer document signed by them. Most stock these days is owned in electronic form, so most transfers take place by the donor asking their agent to transfer the stock to an electronic account at the charity. Similar to the case of private carrier delivery above, the stock is considered received on the date it arrives at the charity, not the date that the donor asks the agent to make the transfer. If your donors are transferring stock, advise them to give plenty of time for their agent to make the transfer, so that it reaches your organization by December 31.
- A similar situation exists where donors make gifts directly from IRA accounts. More on that below, but the same principle applies. You should give your IRA administrator plenty of time to make sure that the gift arrives at the charity in time.
Fewer taxpayers itemize their deductions because there is no benefit unless they exceed the standard deduction. The standard deduction amount for 2022 is $12,950 for a single taxpayer, and $25,900 for married taxpayers filing jointly. Many taxpayers give less than these amounts and don’t itemize. The non-itemizer’s charitable deduction, put in place to help charities in 2020 and 2021, has not been renewed and is no longer available.
One strategy many donors have been using is to “bunch” their gifts into a Donor Advised Fund (DAF), giving an amount large enough to boost them into itemizing their gifts and other deductions. Then, the following year, they can dole out gifts to their favorite charities from the DAF.
Gifts from IRAs
Many charities have also seen an increasing number of gifts from donors’ IRAs. The rules that allow donors to make gifts from IRAs have been of great benefit to both donors and charities. The rule allows gifts of up to $100,000 to be made each year from an IRA. The donor must be 70 ½ years old, and the gifts will not count towards any type of charitable deduction. But they will also not count towards the income of the donor. The gift will count towards any required minimum distribution (RMD).
One thing to note is that although a person 70 ½ or older can make a gift in this way, RMD is not required until the IRA owner reaches 72 years of age. The small discrepancy of the ages should not deter a donor who is motivated to make a gift from their IRA from doing so once they reach 70 ½ years of age.
Rising Interest Rates
Although nobody likes inflation, rising interest rates this year have made certain types of charitable gifts more attractive. One of the factors used in determining charitable deductions for planned gifts such as charitable gift annuities and charitable remainder trusts is an interest rate that the IRS promulgates each month. Over a year ago, in 2021, that rate was less than 2%. It is now between 3 ½ and 4%, and will probably rise in the future. The higher the rate goes, the higher the charitable deduction calculation is for gift annuities in remainder trusts. Donors may want to talk to their professional advisors about the advisability of creating one of these gifts before year end to maximize their charitable deductions.
On a related note, this year saw a substantial increase in the rates paid by charitable gift annuities. If a donor is working with a charity that offers these, this is a good time to take a close look at the benefits of a charitable gift annuity for tax and income planning purposes.
Another thing to be aware of before the end of the year is whether a new tax law is enacted by Congress. Historically, after midterm or presidential elections, there is often an opportunity for Congress to put together a tax package just before the end of the year. It would be wise for all donors and charities to keep a close eye on the news related to any new tax law, to see if it affects charitable giving in a substantial way. Some of the proposals that are in Congress at the moment would do just that, so be aware.
Planned Giving Programs
Finally, year-end is a great time to review and audit your Planned Giving program, or plan to start one. If you aren’t sure where to begin, a great place to start is with our free Planned Giving Assessment. Our comprehensive data analysis takes your anonymized donor data and provides specific recommendations that will help you to realize the hidden planned gifts within your donor file. And there’s no obligation to work with us in order to implement the learnings from this assessment. Click here to request your free Planned Giving Assessment and start 2023 with a fresh look at your planned giving potential.
This is a lot to consider, so we advise using this blog, and any pertinent elements for your organization, to craft an email to your donors discussing these options. But do it soon. December 31 is just around the corner.
Bob Shafis is the Director of Planned Giving Services at Veritus Group. He’s been a successful fundraiser, speaker, and attorney for over 30 years. Programs under his direction have accounted for over $750 Million in major and planned gifts. As Director of Major Gift Planning at Chicago’s Museum of Science and Industry, and Director of Major and Planned Giving for The Field Museum, he participated in campaigns of over $200 million each. Mr. Shafis is a board member of the National Association of Charitable Gift Planners. He also speaks to national and local groups about planned giving, estate planning, charitable tax issues, and the fundraising process.