Charitable Giving Strategies to Maximize Tax Benefits Before Year-End
With proper planning, charitable contributions can both reflect your values and provide meaningful tax advantages.
As the year winds down, many individuals begin thinking about charitable giving. For some, it’s an opportunity to support meaningful causes and make an impact in the community. For others, it’s also a strategic way to manage taxes before December 31. With proper planning, charitable contributions can both reflect your values and provide meaningful tax advantages. Here are several strategies to consider as you plan your year-end giving.
1. Give Appreciated Assets Instead of Cash
Donating appreciated securities, such as stocks, bonds, or mutual funds, can be more tax-efficient than giving cash. By gifting appreciated assets held for more than a year, you can avoid paying capital gains tax while also receiving a charitable deduction for the full fair market value. This strategy allows you to support your favorite causes while reducing your taxable income.
2. Consider Qualified Charitable Distributions (QCDs)
If you are age 70½ or older, a Qualified Charitable Distribution from your IRA can be a powerful giving tool. You can transfer up to $105,000 (2024 limit) directly to a qualified charity, which counts toward your Required Minimum Distribution (RMD) but is excluded from your taxable income. For retirees who don’t itemize deductions, this can be one of the most tax-efficient ways to give.
3. Leverage Donor-Advised Funds (DAFs)
A Donor-Advised Fund allows you to make a charitable contribution, receive an immediate tax deduction, and then recommend grants to charities over time. This can be especially helpful if you expect higher income this year and want to maximize your deduction now, while still spreading out your giving in future years.
4. Bunch Charitable Contributions
With the higher standard deduction, some families find that their charitable contributions alone are not enough to exceed it. One strategy is to “bunch” donations into a single tax year—making two or three years’ worth of gifts at once—to maximize itemized deductions. This approach can be paired effectively with a Donor-Advised Fund.
5. Document Your Gifts Properly
To claim a deduction, you must maintain records of your charitable donations. For cash contributions, keep bank statements or written communication from the charity. For gifts of property or securities, additional documentation and appraisals may be required. Good record-keeping ensures your contributions are fully recognized at tax time.
Final Thoughts
Charitable giving is both a way to support the organizations that matter most to you and a valuable tool in your overall financial plan. By taking advantage of tax-efficient giving strategies, you can maximize the impact of your donations while minimizing your tax burden.
Before making significant charitable gifts, it’s wise to consult with your financial advisor or tax professional to determine the best approach for your personal situation. At Prism Capital Management, we’re here to help you align your giving strategy with your broader financial goals.
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