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Practical Planning Tip: Charitable Giving before year-end

December 05, 2023

Today’s year-end planning tip will cover Charitable Giving before year-end.

When it comes to giving charity there are a myriad of creative options this year. Let’s discuss just a few in the next minute or so.

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. After the sunset of this Act, this limit will revert to 50%, so donors should consider maximizing their cash gifts today.

Donate appreciated stocks: Many investors may have long held or concentrated stock positions with large imbedded 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 may have large gains in the big tech stocks and  they 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 that you would otherwise need to pay when selling the security. It also allows you to minimize a large position, which helps “derisk” your portfolio.

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.

Planning Tip: A DAF may be particularly useful when “bunching” your charitable contributions, which involves donating several years’ worth of charitable contributions all at once, which is done for tax planning purposes. For example, charitable contributions are only tax deductible to those who itemize their deductions. This year the standard deduction is $13,850 for single filers and those married filing separately. It’s $27,700 for those married filing jointly, and $20,800 for heads of household. To help your itemized deductions exceed the standard deduction amount, one may consider “bunching” multiple years’ worth of charitable donations. This may allow the donor to exceed the standard deduction this year and take the itemized deduction, yet still distribute the funds over the current and subsequent years.

You can view the FULL video on my YouTube channel.