The IRS has announced the values for 2022 of various tax items that are indexed annually for inflation. In general, values have been adjusted upward about 3.0%. Of particular interest to gift planners, the unified gift and estate tax exemption amount will be $12,060,000 ($24,120,000 per couple) in 2022, an increase from $11,700,000 ($23,400,000 per couple). For the first time since 2018, the annual gift tax exclusion will also increase, from $15,000 per person this year to $16,000 per person next year. Also of interest, the standard deduction in 2022 will increase to $25,900 for married couples filing jointly and to $12,950 for single filers, an increase of $800 and $400, respectively. Taxpayers who are 65 or older will qualify for an additional $1,400 in standard deduction on top of that (an additional $1,750 if single and not a surviving spouse). See Revenue Procedure 2021-45 (https://www.irs.gov/pub/irs-drop/rp-20-45.pdf) for complete details, including all federal income tax schedules for 2022.
Late last Friday, with bipartisan support, the House of Representatives passed the “Infrastructure Investment and Jobs Act” (HR 3684). What is the impact on charitable gift planning and year end giving? Not much. While there is much good for the country expected from it, the bill includes almost no tax changes, only one of which is even tangentially related to charitable giving: a provision requiring additional reporting for cryptocurrency transactions beginning in 2024.
At best, the current status of tax legislation is confused. There are two major pieces of legislation making their way through the process. Although they are distinctly separate bills, they are inextricably linked to one another. Each proposes different changes to tax law, and, even worse, the word “infrastructure” has been used, loosely, to describe both of them. Making matters even more confusing, the path forward in the U.S. Senate involves two procedural rules that are anything but intuitive. Confusion is never good for donors, so let’s break it down… but if you’d rather duck the policy wonk stuff, skip to the end for some thoughts about communicating with donors this year-end.
We occasionally receive calls from clients regarding questions about the best way to perform internal accounting for charitable gift annuities. As a split-interest charitable gift arrangement, the CGA represents both a gift to the charity and a financial obligation to the annuitant(s). On this much, there is general consensus, but on the manner in which the charity should compute the estimated remaining liability for each CGA over time, there are two main approaches. Given that the total funding minus the charitable deduction equals the total estimated liability at the outset of the gift arrangement, some organizations choose to record the incremental changes in liability as a sort of mortgage payment plan, or straight-line depreciation schedule. This method essentially amortizes the total estimated liability at the beginning and breaks that total down into regular and consistent annual amounts (sometimes even quarterly amounts). There is a fundamental problem with this approach; A gift annuity is NOT a mortgage.
[NOTE: The following is based on a true story.] Some of the numbers just didn’t make sense. It was that most wonderful time of the year for a non-profit organization – the closing of the June 30 fiscal year! Almost like Christmas in July, everyone was busy reviewing tally sheets and running various reports in an effort to provide comprehensive information about the gifts received over the previous 12 months. With outright gifts, of course, the process was fairly straightforward – whatever was received, for the most part, was counted with a few exceptions. With life income gifts, however, the process was a little more complicated, since the organization needs to report the total funding amount, the estimated liability, and the estimate of the charitable remainder.