By Shauw Chin Capps, CBF Chief Development Officer & CBF Foundation President
While getting a tax deduction is not the sole motivation for most people who give to their church, research suggests that it has always been an important factor for all types of charitable giving. If we can create a win-win for both the church and the donor, then it can be very helpful to educate members of your congregation about tax savvy ways to give. Below are five simple tax-savvy charitable giving strategies that a Stewardship or Finance Committee may want to share with their congregation, especially during the tax season as people begin to think about strategies for the year ahead.
Itemize Deductions If The Numbers Add Up
Add up the amount of your allowable itemized deductions, including your home mortgage interest, property/state/local income taxes and other common deductions. If that number is greater than the standard deduction allowed for that year, then itemizing would leave you better off. If not, then it would make more sense to take the standard deduction, which in 2022 is $12,950 for individual taxpayers or $25,900 for married couples filing jointly. For those over the age of 65, there’s an additional amount you can deduct—$1,750 if single and $2,800 if married (and both are over 65).
Donate Stocks Or Bonds
Donating appreciated securities like stocks or bonds can increase your giving power to make a bigger impact and increase your tax savings. Writing a check or giving via credit card remain the simplest ways to give, but they aren’t typically the most efficient ways from an income tax perspective.
The two main benefits of donating appreciated assets are: 1) You can avoid paying capital gains tax and 2) you can take a charitable deduction for the entire donation amount, up to the overall amount allowed by the IRS.
Here’s an example: Jack purchased one share of stock in ABC Company years ago when it cost $100 per share. The share is now worth $1,000. If Jack gives that share of stock to his church, he will have a $1,000 charitable income tax deduction without recognizing the $900 of capital gain that he would have recognized if he sold the share of stock himself.
To make this process simple for members of your church, and to make stock giving accessible to our partner churches, CBF and the CBF Foundation offer a free online tool that allows members of your congregation to make this gift more quickly and easily than ever. After providing some brief details about the assets you wish to transfer and information about your church, you have the option to either print and mail your forms or donate electronically. CBF receives the donation and then passes it through to your church.
Consider A Qualified Charitable Distribution (QCD)
If you are 72 and older, you must take a required minimum distribution (RMD) from your IRA. To reduce your taxable income, you can take a qualified charitable distribution, or QCD. These are donations made directly from your IRA to your chosen charity or church. While the gift amount won’t qualify for a charitable deduction, it won’t be considered taxable income either. This effectively deducts the amount transferred to charity from your taxable income, even if you would not otherwise be itemizing deductions. QCDs count toward satisfying your required minimum distribution (RMD) for the year if it has not already been met. If you haven’t removed any funds yet this year, note that your first 2022 withdrawal will automatically count toward your RMD and can be taxed as income—unless it’s a gift to your church!
Here’s an example: Jane has an IRA with a $10,000 RMD. She directs $1,000 from her IRA to her church and takes the remaining $9,000 RMD. On her income tax return, she will report only $9,000 of taxable distributions from this retirement account.
CBF and CBF Foundation offer a free tool to help you calculate your RMD, learn more about your potential savings and create a gift to your church that will have an eternal impact. With this online tool, you can fill out the necessary forms online, or print and complete your forms offline, whichever you prefer.
Consider A Donor-Advised Fund (DAF)
Donor Advised Funds are one of the fastest growing charitable giving vehicles because you can maximize your charitable impact, save on taxes, and streamline the administration of your donations. Funding a DAF allows you to claim an immediate charitable tax deduction and then recommend when to distribute the money to your favorite charities on a timetable that works for you. While you decide on the causes and ministries you want to support financially, the funds in your DAF are invested and have the potential to grow tax-free over time, enabling you to give even more to the causes close to your heart. For an even greater tax benefit, you can fund your DAF with appreciated securities rather than cash.
Bunch Your Charitable Gifts
As a way to make your itemized deductions exceed the standard deduction threshold and ultimately reduce your tax bill, you might consider “bunching” or prefunding your charitable gifts into one tax year. Taxpayers often bunch in this way by donating appreciated securities. You should discuss this strategy with your financial advisor or your accountant. This strategy might benefit the donor, but it may not be advantageous to the church unless the church knows to put away the “bunched funds” into a reserve fund to be used in subsequent years.
Example: Jack and Jill are both age 60. They typically give $10,000 per year to their church. Their standard deduction for 2022 is $25,900. The only other itemized deduction available is the $10,000 state and local income tax deduction. If Jack and Jill gave $10,000 to their church this year, they would not receive an income tax deduction (because the standard deduction is higher). They could, however, make three years’ worth of gifts this year and their itemized deductions would total $40,000 ($30,000 charitable donations plus $10,000 state and local income tax deduction).
For more information or guidance on any of the ideas mentioned in this article, contact Shauw Chin Capps at firstname.lastname@example.org or 770-220-1622.
Tool kits for church promotion of several of the tips mentioned above can be found on the CBF Church Finance Webpage at www.cbf.net/church-finance-resources.