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A Collection of Charitable Articles by Nell Graham Sale
December 2022

Charitable You:  The Times They are A-Changin’

Federal income tax laws change from year to year.  If you itemize your deductions on your income tax return, the amount that you can deduct from your adjusted gross income in 2022 for charitable donations is now 50%.  You may recall that in 2020 and 2021 this percentage was raised to 100%.  Not any more…

The CARES Act of 2020, which allowed a 100% income tax deduction for charitable gifts, expired at the end of 2021.  So, for example, in 2022, if you report adjusted gross income of $100,000, and you make charitable gifts of $60,000, and you itemize, you can only deduct $50,000 as a charitable deduction.

 If you do not itemize and file as a single taxpayer in 2022, the standard deduction is $12,950, but you can take an additional deduction of $300 for all charitable gifts that you make.  Using the example above, you would get only a $300 charitable deduction along with the $12,950 standard deduction–if you made charitable gifts of $60,000 and had taxable income of $100,000.  

If you file as a married couple, the standard deduction is $25,900 in 2022, with an additional charitable deduction of $600.

For a large charitable gift, itemizing would be the better solution, even though you may not be able to deduct all of your charitable gifts.  However, don’t overlook the opportunity to support your charitable interest even if you don’t itemize–an additional deduction of $300 or $600 depending on your filing status.

 As is always the case, this article is for your information and should not be considered as either legal or accounting advice for your particular circumstances.  But if you have questions, I would love to know what they are.  Send to my attention at info@NWTO.us.

Charitable You: Making Charitable Distributions from Your Retirement Plans

Whatever your age, you can use funds in your retirement plans to make charitable donations to a qualified charity using funds withdrawn from any retirement plan.  Since every dollar you receive from a retirement plan is taxable as income (exception is Roth IRA), here are some things you should know:

• If you are under age 59 ½, there is a 10% penalty for making a withdrawal; after age 59 ½, you can withdraw without a 10% penalty.  

• If you are over age 70 ½, you can make a charitable gift(s) from an Individual Retirement Account (IRA) which does NOT count as taxable income.  This is called a Qualified Charitable Distribution (QCD).

• At age 72 ½ and over, you must take a Required Minimum Distribution (RMD) from your retirement account(s) each year.

If you are under age 59 ½, along with the 10% penalty, every dollar you receive from a retirement plan is taxable as income.  So making a donation requires you to calculate how much of your donation is deductible as a charitable contribution.  In 2022, if you itemize, you are limited to a charitable deduction of up to 50% of your adjusted gross income.

The Qualified Charitable Distribution can only be used for distributions from an Individual Retirement Account (IRA).  All you do is direct your custodian to issue a check directly from your IRA to a 501(c)3, such as the NWTO (or NSMTA).  This QCD is not taxable income to you, because you never receive it.  You may hear people talk about charitable rollovers from an IRA--this is the same thing.

The Required Minimum Distribution for those age 72 ½ or over is calculated using a factor derived from your age applied to the balance in all of your retirement plans at the end of the previous year.  You can withdraw the RMD at any time during the calendar year, and you can specify the account from which you want the RMD to be paid.  This is taxable income each year which you must take. 

Here is the bonus, however.  If you do not need the income for living expenses, you can make a QCD from your IRA for some or all of that RMD up to $100,000 per year.  The QCD portion counts toward your RMD but is not taxable income to you.