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Maximizing Your Year-End Charitable Contributions: A Guide to Giving Smart

As the year draws to a close, many of us reflect on our blessings and look for ways to give back. Charitable giving, especially towards the end of the year, becomes a focal point for many.
Older couple talking with financial advisor

While the primary motive for such generosity is the desire to help others, it is also smart to understand how to make your giving as impactful as possible. While giving back to your community is the driving reason, it is important to make informed decisions about how to structure your donation and the tax benefits once you have decided to donate.

The simplicity of cash donations

Donating cash is the most straightforward way to contribute to charity. It’s especially beneficial for smaller charities that might not have the infrastructure to handle non-cash donations like stocks or real estate. A few years ago, I spent some time volunteering at a local soup kitchen and was struck by the immediate need for resources. A cash donation was used to buy fresh ingredients for the meals we prepared that day. Seeing the direct impact of my donation on the faces of those enjoying a warm meal was deeply affirming. It wasn't just food we were serving, but also hope and community.

For 2023, the limit on charitable cash contributions to public charities is 60% of your adjusted gross income. Remember that your itemized deductions, including charitable gifts, need to exceed the standard deduction, which stands at $13,850 for single filers and $27,700 for married couples filing jointly.

Qualified Charitable Distributions: A smart move for IRA owners

For those over 70.5 years with an IRA, Qualified Charitable Distributions (QCDs) present a savvy giving method. QCDs allow you to donate directly from your IRA to a charity without recognizing the distribution as income on your tax return. An added perk? This can also count towards your required minimum distribution (RMD) for the year. Think of this as a bonus, not the primary goal.  QCDs offer a way to execute an impactful giving strategy, allowing you to support your chosen charities in a tax-efficient manner while also providing a gracious method to manage the multitude of donation requests that often come at year-end. Instead of making spontaneous or impulsive decisions when faced with solicitations, you can rely on your predetermined giving plan, ensuring your donations are aligned with your philanthropic vision and financial objectives. 

Donating appreciated securities  

Consider gifting appreciated stocks or mutual funds. This strategy can offer a dual tax benefit: a potential deduction (if you itemize) and avoidance of capital gains tax on the appreciated assets. However, it's not wise to donate assets that have decreased in value. In such cases, it's better to sell the assets, realize the loss for tax purposes, and then donate the cash proceeds. Remember, the tax deductibility of these gifts is complex and varies based on your individual tax situation. If you’re interested in this strategy, consult your tax advisor for guidance. 

The versatility of Donor-Advised funds  

Donor-Advised funds (DAFs) have gained popularity as a flexible and relatively straightforward charitable giving tool. They allow you to contribute several years' worth of donations (including appreciated securities) and recommend distributions to charities over time. DAFs are an excellent way to manage your philanthropic activities while potentially receiving immediate tax benefits. What makes DAFs particularly special is their potential to involve the whole family in philanthropy. We have seen a growing number of clients embrace DAFs as a tool to engage their children in discussions about charitable giving, turning financial planning into a family affair that teaches the next generation about the importance and joy of supporting the community. This not only helps instill values of compassion and generosity but also ensures that their legacy of giving continues through their children. 

While these strategies focus on year-end giving, they represent just a fraction of the ways to engage in philanthropic activities. Those interested in creating a lasting charitable legacy can explore additional options such as endowments, bequests, and charitable trusts.  These options are best explored with your estate planning attorney, CPA, and financial advisor to ensure they align with your financial goals, tax considerations, and philanthropic vision. They can help you navigate the legal and financial intricacies involved in creating a lasting charitable legacy tailored to your unique circumstances.  

Always remember, the true essence of giving lies in the desire to make a difference. Any tax benefits received are simply a bonus to this altruistic endeavor. 

* Please note, the specifics of how much of your donation is tax-deductible should be discussed with your tax advisor, as it is beyond the scope of this piece.

About the Author

Tori Anguiano

Tori Anguiano, CFP®

Assistant Vice President
Financial Planner