November 19, 2024
As Thanksgiving draws near, many of us are moved by gratitude and the desire to give back. Beyond the immediate impact of donating to a cause you care about, there are ways to structure your charitable giving to benefit both your chosen charities and your own financial health. Tax-efficient giving strategies can maximize your contributions and make your donations go further, all while potentially reducing your tax burden.
If you’re looking to make the most of your giving this Thanksgiving, here are some tax-smart approaches to consider, whether you’re donating cash, assets, or through other vehicles.
Donating highly appreciated stock is a tax-smart way to support your favorite charities. By giving long-term appreciated assets—those held for more than a year—you can avoid paying capital gains tax on the appreciation while still deducting the full fair market value of the stock. You can give more to the charity without incurring extra tax costs, making it an efficient option if you hold assets that have significantly increased in value. The charity receives the full value of the stock, allowing your contribution to go even further.
A donor-advised fund (DAF) offers a flexible, tax-efficient way to manage your charitable contributions while supporting the causes that matter to you. By contributing to a DAF, you can receive an immediate tax deduction, and distribute funds to charities over time. This option provides the opportunity to grow your charitable dollars tax-free and allows you to be strategic about when and where you give.
For those looking to maximize their giving while simplifying record-keeping and planning, a DAF offers an ideal solution, especially when you want to make a larger donation in a high-income year but prefer to spread out the impact of your charitable grants over time.
If you’re 70½ or older, you can make charitable gifts directly from an IRA through a QCD. With a QCD, the donation is not counted as part of your taxable income, meaning it doesn’t appear on your tax return. This results in a lower taxable income and, consequently, a reduced tax bill. Plus, you don’t need to itemize your deductions to benefit from this tax advantage. Since specific rules apply to QCDs, it’s a good idea to check with your tax or financial advisor before using this strategy.
As the end of the year approaches, many people feel the pressure to make charitable donations for tax benefits, leading to a last-minute scramble. By taking the initiative now to support the causes you care about, you not only alleviate this stress but also ensure that your contributions have a meaningful impact during this crucial season of giving. Planning your charitable giving in advance allows you to thoughtfully consider which organizations align with your values and to explore tax-efficient strategies that maximize your generosity. This Thanksgiving, embrace the spirit of giving and make your contributions count—your chosen charities will thank you, and you’ll enjoy the peace of mind that comes with planning ahead.
