As the holiday season approaches, many individuals revisit their philanthropic goals and consider how to give most effectively before year-end. Several strategies can help you maximize both the impact of your charitable support and the potential tax advantages. One popular option is the use of Donor-Advised Funds (DAFs), which allow you to make a charitable contribution now, receive an immediate tax deduction, and then recommend grants to charities over time. DAFs can be particularly helpful if you wish to make a larger gift in a high-income year or if you are close to the standard deduction threshold and want to “bunch” charitable contributions in order to itemize.
Another highly effective approach is gifting long-term appreciated securities. Donating investments with significant unrealized gains allows you to avoid capital gains tax while potentially receiving a deduction for the asset’s fair market value. This strategy can be more tax-efficient than giving cash. However, it is important to avoid donating investments with unrealized losses; instead, these assets should typically be sold first to capture the loss, with the proceeds then donated if desired.
Individuals age 70½ or older may also benefit from Qualified Charitable Distributions (QCDs), which allow up to $108,000 per year per person to be transferred directly from an IRA to a qualified charity. QCDs exclude the donated amount from taxable income and count toward Required Minimum Distributions once RMDs begin at age 73. This can be especially advantageous for those who do not itemize deductions but still wish to give charitably.
When deciding what to donate, consider prioritizing appreciated assets or, if eligible, IRA funds through QCDs. Cash gifts are always acceptable but are not always the most tax-efficient method. As you evaluate your options, the federal deduction limits below may be helpful:
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