4 Tax-Savvy Charitable Giving Strategies At Year-End

As the year comes to a close, giving back can be rewarding while also helping you reduce your taxes. Charitable donations, if planned carefully, can create significant tax advantages and help you be well-prepared when tax season rolls around. Let’s dive into creative ways to make a difference while boosting your tax savings.

Think Outside of the (Cash) Box

While cash/check may be the first thing that springs to mind when considering your year-end giving, another potentially more advantageous option is donating long-term appreciated assets. Why? You could save yourself on costly capital gains taxes. By donating highly appreciated assets, neither you nor the charity are on the hook for taxes on the gain, effectively boosting the value of your gift. Whereas if you sold the asset first, you’d need to pay taxes and ultimately reduce how much you can give. Long-term appreciated assets can include things like:

• Stocks

• Bonds 

• Real Estate

• Employer stock options

• Mutual fund units

Donating long-term appreciated assets does more good than avoiding capital gains tax—you can also take an income tax deduction for the total fair market value of the asset. While you can generally deduct up to 60% of your adjusted gross income via charitable donations, you can only claim up to 30% of your AGI for non-cash asset donations. That said, few people give more than 30% of their taxable income to charity, so it’s still an attractive tax-advantaged giving option. 

Bunch Your Donations Together

Another creative giving strategy is “bunching,” which means grouping several years of charitable gifts into a single year. For example, if you usually give $10,000 annually, you could choose to give $20,000 in one year and itemize your deductions. In the following year, even if you do not make additional charitable gifts, you can still take the standard deduction. This approach allows you to maximize your deductions in your high-giving year while benefiting from the standard deduction in the next. If you are unsure whether bunching is right for your situation, it is important to carefully review your tax return. The Dala Group analyzes your tax return to identify opportunities like this and help you make the most of your giving.

Open A Donor Advised Fund

Donor Advised Funds, or DAFs, are charitable investment accounts that allow you to contribute, receive an immediate tax deduction, and recommend grants over time. They can be especially helpful if you want to maximize your charitable deductions but are not ready to decide which causes to support. Benefits include:

• Easy and flexible use

• Streamlined giving, saving time during tax season

• Ability to contribute a wide range of non-cash assets

• Using the fund for bunching strategies

Keep in mind that contributions to a DAF are irrevocable, and there may be fees, so understanding the terms before opening an account is important. Most major investment firms offer charitable DAFs, and your financial advisor can help you determine if this is a practical giving method.

Already Retired? Consider a Qualified Charitable Distribution

For individuals at or above the IRS’s Required Minimum Distribution (RMD) age, a Qualified Charitable Distribution allows you to transfer funds directly from a traditional IRA to a qualified public charity. This strategy lets you meet your RMD while reducing taxable income. QCDs can be made for all or part of your RMD up to the annual limit set by the IRS and must be sent directly from custodian to custodian. This method also offers the benefit of tax-free donations to heirs if you are considering estate planning.

How A Financial Professional Can Amplify Your Giving

These strategies are just the beginning of what you can do to make your giving more impactful and tax-efficient. Working with a professional can help you coordinate donations, maximize deductions, and align your charitable giving with your broader financial goals. To get started, reach out today to see how we can help you give smarter while achieving your financial objectives.