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Like it or not, the end of another year is just around the corner. Before deadlines loom, we’d like to encourage you to take stock of your year-to-date tax situation so you can properly plan and implement strategies that may help you comply with and take advantage of opportunities within the tax law.

First, determine if you anticipate that you will have qualifying itemizable expenses that exceed standard deduction amounts of $12,950 for single taxpayers or $25,900 for those married individuals filing jointly in 2022. These amounts increase by $1,400 ($1,750 for single taxpayers or filing head of household status) for taxpayers who are at least 65 years old or blind. Taxpayers who can be claimed as a dependent by another taxpayer are limited to the greater of $1,150 or earned income plus $400 up to the basic standard deduction amounts based on filing status.

Common Itemizable Expenses

  • Gifts to charity (cash, check, or other property gifted to a qualified charitable organization)
  • Medical and dental expenses not covered by insurance to the extent they exceed 7.5% of your adjusted gross income (AGI)
  • State and local taxes up to $10,000 ($5,000 married filing separately)
  • Home mortgage interest (subject to limitations)

Charitable giving is often the category that pushes taxpayers over the thresholds discussed above for itemizing their deductions. Below are tax considerations on ways to donate resources to a charitable organization or an individual that can help reduce taxes in the current year.

  • Qualified Charitable Distributions (QCDs) from IRAs – A QCD is a charitable contribution made directly from your IRA to a charitable organization of up to $100,000 annually. It satisfies your requirement to take required distributions from your IRA while also avoiding the need to recognize the distributed amount as taxable income. This strategy can particularly be beneficial for retirees who do not have enough deductible expenses to itemize.
  • Gift of Appreciated Securities – Gifting shares of highly appreciated assets directly to a charity or charitable fund such as a foundation or donor-advised fund can allow you to avoid a capital gains tax liability on these assets, commonly resulting in tax savings. The deduction is generally subject to a lower limitation based on AGI, so it’s important to know your expected income and plan accordingly.
  • Gift of Non-Cash Assets – These gifts can range in complexity from a simple donation of clothing or furniture to charities like Goodwill to gifts of real estate. It is a best practice to track donations of physical items by taking pictures and to be mindful of appraisal requirements when the value of these assets exceeds $5,000.

While gifts to charities are deductible and can help reduce your current income tax liability, there is another type of gifting that is important to your overall wealth—noncharitable gifting. It is important to note that gifts made during your lifetime can be subject to gift and generation-skipping transfer taxes.
  
While the amount you can give away during your lifetime or at death is set to increase in 2023 (due to inflation adjustments) to $12.92 million per person or $25.84 million for married couples, under current law these amounts are set to “sunset” back to pre-2019 levels (adjusted for inflation) after 2025. This change will result in an increase to the number of taxpayers potentially facing a federal estate tax liability. While we are still three years away from this scheduled reduction in the lifetime exemption amount, now is the best time to take action to plan for and remove potential future appreciation from your estate.

A simple way to reduce your potential taxable estate while preserving your lifetime exemption amount is utilizing transfers that are excluded from gift tax. These include:

  • Annual Exclusion Amount – Present interest gifts, i.e., those where the donee has immediate rights to use, possession, and enjoyment of the property transferred, up to $16,000 in 2022 do not utilize your lifetime exemption. There is no limit on how many people you can give to and a married couple can each utilize their annual exclusion amount to give to children and their spouses to increase the amounts transferred annually.
  • Direct Medical/Educational Payments – Deductible medical costs or tuition paid directly to a medical provider or an educational institution on behalf of others in any amount also do not utilize your lifetime exemption. Gifts only qualify if sent directly to a medical or educational institution.
  • Gifts to Your Spouse – Gifts between spouses in any amount if they are a U.S. citizen. If they are not a citizen, the annual exclusion limit is $164,000 in 2022. Estate equalization is a simple strategy to enact before the deadline by shifting assets between spouses to balance individual estate values.
  • Political Organizations – While these gifts are not deductible for income tax purposes, they are not treated as taxable gifts.

While the rules surrounding taxation of gifts can seem complicated, don’t let them get in the way of your desire to help others. If you have further questions, please reach out to a professional with FORVIS Private Clientor submit the Contact Us form below for guidance.

Read more articles from the FORVIS' 2022 tax guide.

FORVIS Private Client services may include investment advisory services provided by FORVIS Wealth Advisors, LLC, an SEC-registered investment adviser, and/or accounting, tax, and related solutions provided by FORVIS, LLP. The information in this presentation should not be considered investment advice to you, nor an offer to buy or sell any securities or financial instruments. The services, or investment strategies, mentioned in this presentation may not be available to, or suitable, for you. Consult a financial advisor or tax professional before implementing any investment, tax, or other strategy mentioned herein. The information herein is believed to be accurate as of the time it is presented and it may become inaccurate or outdated with the passage of time. Past performance does not guarantee future performance. All investments may lose money.

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