For many people, the end of the year is a time to review charitable gifts that have already been made during the year and to consider making additional charitable gifts before the tax year ends. If you are one of these people, we have a few reminders that you might find helpful.
Expanded tax benefits for those who don’t itemize
The law now permits you to claim a limited deduction on your 2021 federal income tax return for cash contributions made to qualifying charitable organizations even if you don’t itemize your deductions. Individuals can claim a deduction of up to $300 for cash contributions to qualifying charities during 2021, and married individuals filing joint returns can claim up to $600.
Qualified charitable distributions
If you are age 70 ½ or older, you can make a qualified charitable distribution (or “QCD”) of up to $100,000, directly from your IRA to a qualified charitable organization. A QCD is generally a nontaxable distribution made by the IRA trustee directly to a charitable organization. A qualifying deduction may also count toward the taxpayers required minimum distribution requirement for the year.
Most cash donations made to charity qualify for the deduction. However, there are some exceptions. Cash contributions that are not tax deductible include those:
- Made to a supporting organization
- Intended to help establish or maintain a donor advised fund
- Carried forward from prior years
- Made to most private foundations
- Made to charitable remainder trusts
These exceptions also apply to taxpayers who itemize their deductions.
Cash contributions include those made by check, credit card or debit card as well as unreimbursed out-of-pocket expenses in connection with volunteer services to a qualifying charitable organization. Cash contributions don’t include the value of volunteer services, securities, household items or other property.
The IRS announced in November increases to retirement plan limits for 2022. The 2022 contribution limit for 401(k) plans will increase to $20,500, which means that next year you can put an extra $1,000 into your 401(k) plan. The IRS also announced cost‑of‑living adjustments that may affect pension plan and other retirement-related savings in the coming year.
Highlights of changes for 2022
The contribution limit for employees who participate in 401(k), 403(b), most 457 plans, and the federal government’s Thrift Savings Plan is increased to $20,500 in 2022. Limits on contributions to traditional and Roth IRAs remains unchanged at $6,000.
You can also deduct contributions to a traditional IRA if they meet certain conditions. If neither you nor your spouse is covered by a retirement plan at work, your full contribution to a traditional IRA is deductible. If you or your spouse is covered by a retirement plan at work, the deduction may be reduced or eliminated. The amount of the deduction depends on your filing status and your income.
Traditional IRA income phase-out ranges for 2022
- $68,000 to $78,000 – Single taxpayers covered by a workplace retirement plan
- $109,000 to $129,000 – Married couples filing jointly. This applies when the spouse making the IRA contribution is covered by a workplace retirement plan.
- $204,000 to $214,000 – A taxpayer not covered by a workplace retirement plan married to someone who’s covered.
- $0 to $10,000 – Married filing a separate return. This applies to taxpayers covered by a workplace retirement plan
Roth IRA contributions income phase-out ranges for 2022
- $129,000 to $144,000 – Single taxpayers and heads of household
- $204,000 to $214,000- Married, filing jointly
- $0 to $10,000 – Married, filing separately
Saver’s Credit income phase-out ranges for 2022
- $41,000 to $68,000 – Married, filing jointly.
- $30,750 to $51,000 – Head of household.
- $20,500 to $34,000 – Singles and married individuals filing separately.
The amount individuals can contribute to SIMPLE retirement accounts also increases to $14,000 in 2022.