Today’s year-end planning tip is Charitable Giving:
When it comes to giving charity there are a myriad of creative options this year.
First is to consider the Deduction for cash contributions: Under the Tax Cuts and Jobs Act, the deduction for cash contributions directly to charity increased from 50% of AGI to 60%, including for gifts to a donor-advised fund. If this Act sunsets, this limit will revert back to 50%, so donors should consider maximizing their cash gifts today.
Another idea is to Donate appreciated stocks: This is especially relevant in 2024 when stocks skyrocketed. It may also apply if you have a concentrated stock position with large unrealized capital gains. This may be through accumulating shares from working at a company for many years, the appreciation over decades of a long-held position, OR investors having large gains in the big tech stocks that keep rising and want to “trim” their position. For all these scenarios they can consider donating these highly appreciated securities DIRECTLY to charity, which helps avoid paying capital gains tax. It also allows you to minimize a large position, which helps derisk your portfolio.
And here is a charitable giving Planning Tip: which is to Utilize a Donor-Advised Fund or a DAF: A DAF is an account where you can deposit assets for donation to charity over time. The donor gets an immediate tax deduction when making the contribution to the DAF and can still control how the funds are invested and distributed to charity. A DAF can be extremely useful if you hold a security with no cost basis, a highly appreciated stock, or a concentrated position. In ALL of these scenarios, the tax liability can be circumvented by moving that position to a DAF.
DAFs are also useful when “bunching” your charitable contributions, which involves donating several years’ worth of charitable contributions all at once. Charitable contributions are ONLY tax deductible to those who itemize their deductions. This year the standard deduction is $14,600 for single filers and those married filing separately. It’s $29,200 for those married filing jointly, and $21,900 for heads of household. To help your itemized deductions EXCEED the standard deduction amount, one can “bunch” multiple years’ worth of charitable donations. This allows the donor to exceed the standard deduction and take the itemized deduction, yet still distribute the funds over the current and subsequent years.