Year-End Idea #5: Charitable Giving for PG&E Employees

We pause to express gratitude for our bounties and the people in our lives, as the holiday season and the end of the year approach. It is also a time when charitable donations are frequently contemplated. The tax benefits associated with charitable giving may increase your propensity to donate. We recommend that all able-bodied PG&E employees and retirees include this in their year-end tax planning.

According to a recent study by Fidelity Charitable, 60% of individuals aged 65 and older said they plan to donate to charity during retirement, with the average amount of their charitable giving expected to be around $6,500 per year. This suggests that charitable giving is an important consideration for individuals as they approach retirement and can be a meaningful way for them to give back to causes they care about.

Tax deduction for charitable gifts

Generally, if you itemize deductions on your federal income tax return, you can deduct charitable contributions. This may also help you increase your donation.

Example(s): Assume you wish to make a $1,000 charitable donation. One method to potentially increase the value of the gift is to add the amount of any income taxes saved through the charitable deduction. You might be able to give $1,316 to charity at a 24% tax rate [$1,000 (1 - 24%) = $1,316; $1,316 x 24% = $316 in tax savings]. Alternatively, at a tax rate of 32%, you may be able to donate $1,471 to charity [$1,000 (1 - 32%) = $1,471; $1,471 x 32% = $471 in taxes saved].

However, PG&E employees and retirees may want to recognize that their deduction may be limited to a certain percentage of their adjusted gross income (AGI). For instance, your deduction for cash gifts to public charities is generally limited to 60% of your AGI for the year, whereas other gifts to charity are typically limited to 30% or 20% of your AGI. Generally, charitable deductions in excess of the AGI limitations may be carried forward and deducted over the subsequent five years, subject to the income percentage limitations applicable to those years.

For charitable donations made in 2022, the normal rules apply: The limit for direct cash donations to public charities is 60% of AGI. Even if you do not itemize deductions, you can receive a $400 charitable deduction for direct cash donations to public charities beginning in 2021.

Ensure you keep proper documentation of your charitable donation. To claim a charitable deduction for any contribution of cash, a check, or other monetary gifts, you must maintain a record of such contributions in the form of a bank record (such as a canceled check, a bank or credit union statement, or a credit card statement) or a written communication (such as a receipt or letter) from the charity showing the name of the charity, the date of the contribution, and the amount of the contribution. If you claim a deduction for a charitable contribution of $250 or more, you must provide a contemporaneous written acknowledgment of the contribution from the charity. There are additional requirements if you make non-cash contributions.

Year-end tax planning
When making charitable contributions at the end of the year, employees and retirees of PG&E should factor them into their year-end tax planning. Typically, you have some influence over the timetable of your income and expenses. In general, you should time the recognition of your income so that it is taxed at the lowest possible rate, and you should time the recognition of your deductible expenses so that they can be claimed in years when you are in a higher tax bracket.

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For instance, if you expect to be in a higher tax bracket the following year, it may make sense to delay making the charitable contribution until January so that you can claim the deduction the following year, when it will provide a greater tax benefit. Alternately, you could transfer the charitable contribution and other deductions to a year in which your itemized deductions exceed the standard deduction. And if the aforementioned income percentage limits are a concern in a given year, you may want to consider shifting income into that year or shifting deductions out of that year so that a larger charitable deduction is available for that year. A tax expert can assist you in evaluating your individual tax situation.

A word of caution
Employees and retirees of PG&E should consider only dealing with reputable charities and avoiding those with similar-sounding names. It is common for fraudsters to pose as charities using phony websites, emails, phone calls, social media, and in-person solicitations. Using the Tax-Exempt Organization Search tool on the IRS's website, irs.gov, research the charity. Don't send cash; use a check or credit card instead.

Conclusion

Charitable giving is like planting a tree. Just as a tree grows over time, your charitable donations can also grow and have a lasting impact. The benefits of charitable giving can be seen in the immediate impact on the recipient organization, as well as in the long-term benefits that can come from continued support. Just as a tree provides shade, clean air, and a habitat for wildlife, charitable giving can provide benefits to those in need, as well as to the community as a whole. And like a tree, your charitable contributions can continue to grow and bear fruit long after they are made, leaving a positive legacy for future generations.