As we officially enter the Christmas season and year-end is in sight, charitable giving becomes more of a focus for many people. It seems like there is some debate about how much of total charitable giving happens in December, but it clearly is the highest percentage month of giving for the year. As you make year-end giving preparations, here are five things to keep in mind.
- Giving appreciated securities to charity may provide an increased tax deduction. If you’ve owned stocks or other securities for at least 12 months and they are worth more than you paid for them, you could avoid capital gains tax and receive a full fair market charitable deduction by giving them to charity.
- Giving appreciated real estate or business interests may also provide an increased tax deduction. Like appreciated securities, you could avoid capital gains tax in addition to receiving a fair market tax deduction by giving some or all your ownership interest to charity. These transactions are more complex and take time, so it’s important to get started early.
- If you’re 70.5 or older, you can make gifts directly to charity from your IRA via Qualified Charitable Distributions (QCDs). It’s common for folks to save significant dollars in taxes by using QCDs instead of taking an IRA distribution in cash and then giving the money to charity.
- “Bunching” your charitable giving every other year could provide tax savings over a two-year period verse giving a consistent amount every year. Because it takes a significant amount of charitable giving to get over the current standard deduction (For 2022, $12,950 – Single and $25,900 – Married Filing Jointly), giving larger amounts every other year could be a valuable strategy.
- Using a Donor-Advised Fund (DAF) could provide flexibility in managing your charitable giving strategy. A DAF is an individual giving fund at a public foundation and can make the previously mentioned “bunching strategy” and other charitable giving strategies more practical. You could give to your DAF in one calendar year to get the tax deduction and then distribute the funds to your charities of choice throughout the next year.
At Master’s, we love helping our clients decipher how to make the most out of their charitable giving. We don’t believe tax deductions should be the primary motivation to give to charity. However, once you’ve decided that you want to be generous, it only makes sense to get as many tax benefits as possible.
How can we help you make the most of your charitable giving goals this year?