‘Tis the Season for Charitable Giving

As we head into the holiday season, it is a time of giving for many of us. Many of us have favorite charities or organizations that we like to support each year. The holiday season also marks the end of the year and is a time to review your tax situation. If it looks like you might need some added deductions, charitable giving can be a win-win for both your tax liability and the receiving organization.

Itemizing Deductions

In order to be able to deduct charitable contributions of any type, you must be able to itemize deductions on your tax return. This means that your total itemized deductions must exceed the standard deduction for that tax year. For 2024, the standard deduction is $14,600 for single filers and $29,200 for those filing married and joint.¹

Donating Appreciated Securities

Especially near the end of a year like 2024, donating appreciated securities such as shares of stock, mutual funds or ETFs can benefit both the receiving charity and you in several ways. First when donating appreciated securities, the market value of the shares on the date of the donation is the donation amount. Note it is generally better to donate appreciated shares versus selling them and donating the cash.

The reason is that if the securities are sold first, then capital gains taxes will be due. If the shares are donated directly, there are no capital gains taxes due.

It is important to determine if you can itemize deductions before embarking on donating appreciated securities. Additionally, you will want to contact the charity to be sure they can accept the direct donation of securities.

Given the gains we have seen in the markets this year, this strategy could also become part of your year-end portfolio rebalancing, making this process a bit more tax-efficient.

Donor Advised Funds (DAFs)

A donor advised fund is essentially a charitable investment account where contributions can be invested and amounts withdrawn over time to support various charitable organizations. Contributions of cash, securities, private company stock, crypto and other types of non-public traded assets can be made.

Contributions can be deducted in the year they are made while contributions from the DAF can be made to the organizations of your choice over time. Note the donations made from the DAF will not qualify for a charitable deduction. Donating to a DAF in a given year can be a way to bunch assets to qualify for itemizing deductions on your tax return.

Keep Good Records

As with anything pertaining to your taxes, we cannot stress enough the importance of keeping good records for charitable contributions of all types. This means keeping any sort of receipt or acknowledgement from the receiving organization, and perhaps a copy of a check or a transaction from your brokerage account if contributing appreciated shares.

While proof of your contribution may never be needed, if the IRS requests it, you will need to produce it in order for any deduction you are claiming to remain valid in the face of an IRS review or audit.

Qualified Charitable Distributions (QCDs)

Another tax-efficient option for those who are at least age 70 ½ and who have a traditional IRA account is a qualified charitable deduction (QCD). A QCD is a distribution that is directed to a qualified charitable organization.

There is no tax deduction for a QCD, but the funds come out of the IRA tax-free. This reduces the amount in the IRA that will be subject to required minimum distributions (RMDs) in future years.

For those who have reached the age where RMDs must be taken, they can use a QCD to satisfy some or all of their RMD. One caveat here, the QCD must be taken before the RMD has been satisfied for the year, if taken after the RMD has been satisfied the QCD cannot be used retroactively to satisfy the RMD. Money from a QCD that does satisfy the RMD for the year will result in that portion of the RMD not being taxed.

To discuss tax-efficient ways to donate to the charity of your choice, contact your Wedbush advisor.

1: IRS

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