Tax-Wise Strategies at the Close of the Iowa Legislative Session
May. 31, 2022
By: Jordan Richardson, CAP®
Senior Charitable Giving Advisor
Given the recent completion of the Iowa Legislature’s 2022 session, now is an excellent time to consider tax law changes and how they impact tax-wise charitable giving strategies. While the 2022 session resulted in several changes in state tax law, when it comes to charitable giving, many remain completely unchanged and are powerful tools for your tax planning and charitable giving strategy.
1. Maximize Charitable Deductions
For those who itemize, giving to the causes you care about could result in a charitable deduction on both your federal and state tax returns. That being said, the Tax Cuts and Jobs Act of 2017 brought significant changes to tax code and has resulted in fewer Americans itemizing deductions. For these donors, a strategy called “bunching” may offer a tax-wise solution. Bunching encourages those with charitable interests to consider how much they seek to give to charitable causes annually by making a single gift to a new or existing donor advised fund that totals the amount they seek to give over the course of future years. From a tax planning perspective, making multiple years’ worth of contributions in a single year provides an opportunity to exceed the standard deduction and opens the door to the tax benefits that accompany itemizing. Bunching is also a winning strategy as donors seek to provide consistent annual support to the causes they care about. Because the contribution is made to a donor advised fund, the donor can spread their giving over time and maintain their annual levels of support to their favorite charitable organizations.
2. Avoid Capital Gains Taxes
Donating stock that has appreciated for more than a year is a true win-win if you are seeking a tax-wise giving strategy. The maximum federal capital gains tax rate is 20 percent on long-term holdings, but if that same security is donated, there is no capital gain to pay and the fair-market value of the asset can be deducted from income taxes. Additionally, making a gift of stock to a charitable giving fund at the Community Foundation is easy. Simply contact the Community Foundation to receive transfer instructions to seamlessly donate your stock in-kind to a charitable giving fund.
3. Endow Iowa Tax Credit
The Endow Iowa Tax Credit program continues to be a piece of bipartisan legislation with incredible foresight that will improve our state for generations. We are pleased the legislature has once again approved the Endow Iowa Tax Credit program as part of the state’s annual budget. Available exclusively through Iowa community foundations, the Endow Iowa Tax Credit offers a 25% credit against your state tax liability when you make a gift to a qualified charitable giving fund established to support Iowa causes and communities. This nearly 20-year-old program is certainly unique in both its design and impact. Since 2004, Endow Iowa has leveraged over $311 million in endowment gifts to support Iowa communities and charitable causes. In an effort to engage even more Iowans in this popular program, the Iowa legislature voted to change the maximum annual credit allowance to $100,000 per taxpayer and $200,000 per couple effective January 1, 2023.
4. Take Advantage of the IRA Charitable Rollover
For donors 70 ½ and older, using an individual retirement account (IRA) to support charitable giving is a simple, tax-wise tool to maximize the use of required minimum distributions in support of charitable causes, tax-free. This tool becomes especially appealing to donors who reach the mandatory distribution age of 72. Up to $100,000 per year in IRA distributions can qualify for the IRA Charitable Rollover and thus removes the asset from ordinary income. Even with the passage of the 2022 Iowa tax reform bill eliminating retirement income tax, the IRA Charitable Rollover is still a tax savvy gift as it allows donors the opportunity to avoid federal income tax on the distribution. Additionally, working with the Community Foundation provides donors the opportunity to diversify the organizations they support while taking advantage of the IRA Charitable Rollover. The Community Foundation administers hundreds of funds on behalf of Iowa nonprofit organizations that qualify to receive IRA Charitable Rollover gifts and may qualify for the Endow Iowa Tax Credit. This means donors can use a single IRA gift to support multiple organizations when they work with the Community Foundation. If a donor finds the Community Foundation does not already administer a charitable giving fund for a nonprofit they wish to support, our team can work with the donor to establish a fund on that organization’s behalf using their gift.
As you consider opportunities to incorporate charitable giving strategies into your tax planning, contact the Community Foundation team. We are committed to listening to learn about your goals and then working together to develop personalized approaches to giving that meet both your charitable and financial goals. We look forward to the opportunity to make our state better together.
About the Author:
Jordan leads the Charitable Investment Partner program by collaborating with professional advisors and their clients as they develop and implement charitable giving goals. He facilitates charitable giving programs for local businesses. Nonprofit organizations also rely on Jordan to support their endowments. Jordan is a Chartered Advisor in Philanthropy® (CAP®), a designation which provides expertise to guide charitable individuals and organizations in strategic philanthropic planning. Jordan is also a 21/64 certified advisor, specializing in facilitating conversations with individuals and multigenerational families, so donors can give and connect more effectively in their charitable giving. Contact him at email@example.com or (515) 244-0020.