Get ahead on your tax strategy for the coming year by mapping out your charitable contributions in 2022. By understanding your tax bracket, IRS charitable deduction limits, and options for the types of assets you can donate, you’ll set yourself up to make the biggest impact on causes you care about while also minimizing your tax bill too.
Which tax bracket am I in and how does that impact my deductions?
Federal tax brackets are updated each year by the IRS and indicate a tax rate for each income tier. Here are the tax brackets by filing status for the 2022 tax year.
Note that each tax rate does not apply to your entire income. It’s the rate for each dollar above that income threshold. A married couple’s first $20,550 is only taxed at 10%, no matter how much they earn.
So your effective federal tax rate winds up being much less than what’s listed on this table because each line item is averaged out.
If you live in a state with income taxes, the rates are even higher. For example, a couple in California who have a household income of $250,000 per year not only has a 24% federal tax rate but also a 9.3% state tax rate for a total marginal tax of 33.3%.
Your deductions, on the other hand, are not impacted by your tax bracket. The 2022 standard deduction applies to all taxpayers:
- Single taxpayers and married individuals filing separately: $12,950
- Married individuals filing jointly: $25,900
In order to deduct charitable contributions and other eligible expenses, you’ll need to itemize instead of taking the standard deduction on your federal taxes.
How much do I need to give to charity to make a difference in my taxes?
Can you make charitable tax deductions without itemizing them in 2022? Unfortunately, as of April 2022, the answer is no. In the 2021 tax year, the IRS temporarily allowed individuals to deduct $300 per person (those married filing jointly can deduct up to $600) without itemizing other deductions. But that change does not apply to the 2022 tax year.
What can I take a tax deduction for?
In order to make a donation tax-deductible, you’ll need to itemize your deductions. That means all of your itemized deductions should be greater than the standard deduction. Here are some of the biggest itemized deductions that may apply:
- Unreimbursed medical care expenses that exceed 7.5% of your adjusted gross income.
- Mortgage interest (on up to $750,000 of debt).
- A home equity loan or line of credit interest, but only if used for home improvements, buying, or building.
- Personal property, state, and local taxes (up to $10,000 limit).
When planning your charitable contributions for 2022, first calculate your other potential itemized deductions. That gives you a starting point to see how much you would need to donate in order to make a difference in your taxes. Ultimately, the total would need to exceed the standard deduction amount for your filing status.
Let’s look at an example of mortgage interest and property taxes, which are two of the most common itemized deductions. If you have a $750,000 30-year mortgage at a 3.5% interest rate, you’ll pay over $26,000 in interest in the first year. Say the house is assessed at $850,000 and is subject to San Francisco’s 1.1801% property tax rate. That makes your annual tax bill around $10,000. In total, you could deduct $36,000 from your tax bill, rather than the standard deduction, which ranges from $12,950 to $25,900.
What are the limits for deducting charitable donations?
The IRS sets a limit on how much you’re allowed to claim as a charitable deduction. In 2021, the limit was increased to 100% of an individual’s annual gross income in order to incentivize charitable giving during the COVID-19 pandemic.
But the 2022 charitable contribution rules have reverted back to no more than 50% of your AGI for cash contributions. The limit is 30% of AGI for non-cash contributions (for example, donating shares of stock). It’s still one of the most generous deductions available - a couple with an AGI of $200,000 can deduct up to $100,000 of cash donations to charity in a given year. But any charitable donations above those amounts are not eligible for a tax deduction.
What do I need in order to claim a charitable contribution deduction?
The first step to ensure your contribution is tax-deductible is to confirm that the recipient organization is tax-exempt, which is another great piece about using Daffy. Since Daffy (like all DAF providers) is a registered 501(c)(3), your contributions to your Daffy fund are tax-deductible immediately. Plus, we’ll provide you with a simple tax summary.
If you make a donation elsewhere, you’ll need some information when tax season rolls around, including:
- The name of the organization and the donation amount.
- A bank or credit card statement showing the amount that came out of your account and on what date.
- A receipt from the organization.
Filing away this information right away makes tax season easier and also keeps you prepared in case of a future audit. Alternatively, if you give through Daffy, you’ll have your entire giving history stored for you, making tax season a breeze.
How much can you claim in charitable donations without receipts?
It depends on what type of giving you give and how much.
- Cash contributions: Any cash contributions under $250 don’t require a receipt from the organization. Any contribution of $250 and over does require some type of written communication from the organization confirming your donation.
- Non-cash contributions: For non-cash contributions, the limit to make a deduction without a receipt is $500. Additionally, non-cash contributions also require an appraisal to determine the fair market value of the item you donated. If the value is $5,000 or less, you just need to hang onto the appraisal with your tax documents in case of an audit. But if the appraised value is more than $500,000, you must submit the qualified appraisal to the IRS with the rest of your tax return.
What’s the tax benefit of donating stock to charity?
Instead of selling off well-performing stocks and using the proceeds to donate to charity, you may find even greater tax benefits by directly donating the stock through a donor-advised fund. When you sell your stocks, you’ll automatically trigger a capital gains tax — even if you end up donating the profits.
Depending on your income level, you could end up paying as much as 20% of the profit on your stock in long-term capital gains tax, plus an additional 3.8% in net investment income tax (NIIT). NIIT applies to taxpayers with the following modified adjusted gross income levels:
- $250,000 for married taxpayers filing jointly
- $200,000 for individual taxpayers
And if you held the stock for less than a year, you’ll end up paying your regular income tax rate (which can go up to 37%). State taxes also apply on top of the federal tax rates. In California, that can add up to an extra 13.3% tax rate on your capital gains. (This means that, at the maximum rate, you might owe 37.1% tax on capital gains: 20% + 3.8% + 13.3%)
Not only do you avoid a large tax bill you also increase the amount you can deduct from your taxes. That’s because you’ll deduct the fair market value of the stock on the day you made the donation. If you cashed out first, you’d have to subtract your cost basis (the amount you paid for the stock).
How can I optimize my gains or losses on Bitcoin and Ethereum by donating them?
Buying cryptocurrency can feel like even more of a roller coaster than investing in the stock market. No matter how your crypto portfolio has performed recently, you can optimize your taxes by donating crypto in 2022.
Now that cryptocurrency is considered taxable personal property by the federal government, any realized gains are taxed as capital gains (either long-term or short-term, depending on your holding period). But that also means you can take advantage of IRS tax deductions for donations just as you would with stocks.
Managing all your charitable giving through Daffy makes tax season effortless. All of your records are kept in one place and you can quickly perform your due diligence to make sure you’re donating to exempt organizations. Plus, Daffy allows you to set up automated contributions so you can stay on track with your 2022 tax strategy.
How do I add charitable contributions to a Schedule A form?
The IRS Schedule A form is an amendment to your 1040 form that allows you to itemize deductions. Lines 11 through 14 address charitable contributions. There is also a set of instructions to walk you through what to do if any of your gifts exceed $250. Any charitable contributions over $500 must also include IRS form 8283, which allows you to list out each non-profit and the amount you donated.
Please note that the information contained on this page is for educational purposes only and should not be considered tax or investment advice. Any calculations are intended to be illustrative and do not reflect all of the potential complexities of individual tax returns. To assess your specific situation, please consult with a tax and/or investment professional.