Tax deductible donations explained: Limits and tax rules

What advisors need to know about charitable donations

What are the benefits of donations for businesses?

Which donations qualify for deductions?

Special rules for charitable giving in 2022

Three things to remember about tax deductible donations

FAQs

What advisors need to know about charitable donations 

Charitable giving is a great way for your clients to support important causes and provide them tax-savings opportunities. However, like most things involving the U.S. tax code, it can be complicated to take advantage of charitable donation tax write-offs. We know it’s not easy to keep up with all the tax code changes, so we highlighted the “need to know” fundamentals and some of the biggest updates for the 2022 tax year.

Read on to understand how charitable donations affect taxes for 2022, and learn how to maximize your client’s charitable gifts. Let’s start by answering some essential questions.

Are charitable donations tax deductible?

Yes! In order to take full advantage of the tax benefits, donors must itemize their donations when the combined total of charitable and other itemized deductions add up to be more than the standard tax deduction.

What are the 2022 standard tax deductions?

The standard deduction increased for the 2022 tax year. This year’s standard deduction is $12,950 for single filers, that’s up $400 from the prior year due to an inflation adjustment. It has also gone up $600 to $19,400 for head of household taxpayers, and up $800 for married couples to $25,900.

Changes in the standard tax deduction from 2021 to 2022

Filing Status2021 Tax Year2022 Tax Year
Single$12,550$12,950
Married, filing separately$12,550$12,950
Head of household$18,800$19,400
Married, filing jointly$25,100$25,900

Income tax bracket for your clients? 

Federal taxes are charged at a marginal tax rate, which is a tiered system that applies a percentage of an individual’s taxable income according to each tax bracket that the individual qualifies for. 

For example, for an unmarried person that earns $100,000 annually, a portion of their income is taxed at 12%, then the next portion above the next threshold is taxed at 22%, and then the final portion above $89,075 is taxed at 24%.

2022 Tax Brackets

Tax RateUnmarried individuals with taxable income over:Married individuals filing jointly with taxable income over:Heads of households with taxable income over:
10%$0$0$0
12%$10,275$20,550$14,650
22%$41,775$83,550$55,900
24%$89,075$178,150$89,050
32%$170,050$340,100$170,050
35%$215,950$431,900$215,950
37%$539,900$647,850$539,900

How does a donor’s tax bracket affect their deductions? 

The more a donor’s able to add additional tax deductions, the more they can reduce the amount of income that’s taxed at the highest rate. A homeowner with an active home mortgage or a high-income earner who makes several charitable donations annually, can save thousands of dollars off their yearly tax bill by making tax deductible donations.

What are the benefits of donations for businesses?

Deductible donations aren’t just for individuals. Businesses can also benefit from a donation tax write-off. The actual tax benefits a business will receive will be based on how much is donated and what the businesses’ revenue is. The additional benefits a business might enjoy from charitable donations are:

  • Support for the company’s larger mission and its goals
  • Increased employee morale and engagement
  • Additional promotional and marketing opportunities
  • More involvement with and support for the local community

Business deductions for charitable contributions may be limited, with the donations only eligible for tax deductions by the individual owners. There are also different regulations around donations for sole proprietorships, partnerships, single-member limited liability companies, and corporations. 
One of the best ways to avoid some of the complicated aspects of charitable donations for businesses is to set up a donor-advised fund, which is a popular choice to generate tax-free growth and eliminate capital gains taxes.

Which donations qualify for deductions?

Both cash and non-cash donations can qualify as tax deductible donations, but there are limits and requirements. 

The limit for charitable deduction of cash donations is 60% of adjusted gross income (AGI). For appreciated assets such as stocks and property, the donation is 30% of AGI, provided donors held the assets for more than a year. For donated items such as clothing, food, or goods donors need a receipt that shows the value of these items. 

Required items for non-cash donations:

  • A written letter of acknowledgement for donations over $250
  • Form 8283 for non-cash donations worth at least $500 (completed by donor) 
  • A qualified appraisal of donated items worth more than $5,000 total

Requirements for non-cash charitable contributions

Donation AmountReceipt from charityWritten letter of acknowledgementIRS form 8283Written appraisal
Less than $250x
Between $250 and $500xx
Between $500 and $5,000xxx
Over $5,000xxxx

Time for a service donated doesn’t qualify for tax deduction in 2022. However, you can deduct expenses related to volunteering, such as mileage driving to volunteer, or supplies purchased for a charitable project. To quality, these expenses must be:

  • Directly and solely connected to the volunteer work.
  • Not previously reimbursed.
  • Unrelated to personal, living, or family expenses 

If a charity has a brokerage account, donors can choose to donate stocks. The amount of a donor’s stock donation is equal to the fair market value, which is what it is sold for at the date of the gift. When donated in this way, donors don’t have to pay capital gains on the stock. The stock must have been held for at least one year to qualify for a fair market value deduction.

Special rules for charitable giving in 2022

As an advisor, here’s what’s important to remember about charitable giving and tax dedications for the 2022 tax year:

  • Due to the financial pressure and economic uncertainty following the COVID-19 outbreak, in the 2020 and 2021 tax years the U.S. Congress allowed donors to deduct all or part of their charitable contributions on their tax returns. However, this charitable tax benefit expired on Jan. 13, 2022, and there is no indication that Congress will reinstate the benefit. 
  • The annual income tax deduction limits for gifts of non-cash assets (held for more than one year) to public charities, including donor-advised funds, continues to be 30% of AGI. Contribution amounts in excess of either the cash or non-cash deduction limits may be carried over up to five subsequent tax years. 
  • While the marginal tax rates for 2022 have not changed, the level of taxable income that applies to each rate has gone up. For example, the top rate of 37% will apply to income over $539,900 for individuals and heads of household and to income over $647,850 for married couples who file jointly. See the 2022 tax brackets table above for full details on the 2022 tax rates.
  • The annual exclusion for federal gift tax purposes has increased to $16,000 for 2022, up from $15,000 in 2021. 
  • There is no limitation on itemized deductions in 2022, as that limitation was eliminated by the Tax Cuts and Jobs Act.
  • The Universal Giving Pandemic Response and Recovery Act introduced in the U.S. Senate earlier this year would allow above-the-line deductions worth up to one-third of the standard deduction a taxpayer took for 2021 and 2022. As of the writing of this post there’s been no motion on this bill, but this post will be updated should anything change before the end of the year.

Three things to remember about tax deductible donations

Here are the three most important things to remember about charitable tax deductions:

  1. For 2022 the deduction limits are up to 60% of your AGI for cash donations and up to 30% for non-cash donations. You can find your client’s AGI on Form 1040, line 11.
  1. Encourage your clients to itemize their gifts and keep all records, including a bank record for cash donations. Records should include the date of the contribution, the name of the qualified organization, and the amount of the donation. Depending on the amount and type of donation, a written statement from the organization and an appraisal of the item’s value may be required.
  1. Donors can only receive tax deductions for donations to qualified 501(c)(3) charity organizations. Qualifying charities include public charities, private foundations, or operating foundations but not private foundations, supporting organizations, or donor-advised funds. Search the IRS Tax Exempt Organization site to see a list of all qualified charities. 

If you have more questions or would like advice about charitable tax deductions for your clients, contact our team of experts.

FAQs

What are the key differences for charitable giving from 2021 to 2022?

In 2021 the CARES Act allowed for a deduction of $300 (or up to $600 for married couples filing jointly) for monetary charitable contributions, without the need to itemize deductions. However, CARES expired at the beginning of the year, meaning that all charitable donations will again need to be itemized.

What constitutes complex assets and what can my client deduct? 

There are many different types of assets that count as complex, including privately held business interests, private equity, cryptocurrency, residential and commercial real estate, artwork/collectibles, intellectual property, and more. For more details on donating complex assets, see our web page.

Sources and references

IRS, “IRS provides tax inflation adjustments for tax year 2022, https://www.irs.gov/newsroom/irs-provides-tax-inflation-adjustments-for-tax-year-2022” 

IRS, “Charitable Contribution Deductions, https://www.irs.gov/charities-non-profits/charitable-organizations/charitable-contribution-deductions”

IRS, “Tax Cuts and Jobs Act: A comparison for businesses,​​ https://www.irs.gov/newsroom/tax-cuts-and-jobs-act-a-comparison-for-businesses

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