In 2024, the stock market has witnessed remarkable growth, leading many investors to feel a sense of abundance. With the S&P 500 index soaring over 26% this year, it presents a perfect opportunity for those inclined to share their success through charitable giving. The timing is particularly relevant with Giving Tuesday falling immediately after the exuberance of Cyber Monday, encouraging individuals to think about donating to the organizations they hold dear. However, the way in which one chooses to donate can significantly impact both the donor’s financial situation and the recipient organizations.
Traditionally, cash contributions were the go-to method for charitable donations. However, as financial advice shifts, donating appreciated assets has emerged as a much more beneficial strategy. According to Brandon O’Neill, a charitable planning consultant at Fidelity Charitable, gifting assets such as stocks, mutual funds, or cryptocurrencies not only provides a generous contribution but also offers tax advantages. When donors opt to cash out of their shares, they face a capital gains tax on any appreciation. In contrast, donating these appreciated assets allows individuals to bypass this tax burden entirely, while still enjoying a tax deduction pegged to the asset’s fair market value.
In 2023, non-cash assets accounted for a staggering 63% of contributions to Fidelity Charitable, illustrating a growing trend among donors to leverage the benefits of assets that have appreciated over time. This highlights a potential shift in the mindset of investors and philanthropists who are increasingly looking for ways to make their donations count financially.
For individuals who itemize deductions on their tax returns, maximizing the tax benefits associated with charitable giving becomes paramount. To reap these rewards, assets should ideally be held for at least one year before being donated. This allows donors to claim a deduction based on the asset’s fair market value at the time of donation—far exceeding the original cost basis. Miklos Ringbauer, a certified public accountant, emphasizes that this strategy can significantly impact one’s tax return, potentially leading to a more favorable tax situation.
Moreover, for those considering which assets to donate, stocks that have seen substantial growth in 2024, like Palantir Technologies and Vistra Corp., which are up over 300%, stand out as prime candidates for charitable contributions. By donating high-appreciation assets, donors can effectively reduce their taxable income while providing valuable support to their chosen charities.
In addition to the tax benefits, donating appreciated assets can also serve an important role in portfolio management. Christine Benz, a personal finance expert at Morningstar, argues that charitable gifts can help investors recalibrate their portfolios. For those heavily invested in employer stock, which may pose significant risk due to its concentration, donations can act as an effective strategy for diversifying investments.
Benz suggests that donors consider the potential of “bunching” several years’ worth of donations into a single tax year, capitalizing on the high standard deduction limits. This tactic can enable individuals to itemize their deductions in select years while taking the standard deduction in others, effectively optimizing their tax benefits.
For older investors, particularly those over the age of 70 ½, another strategic approach to charitable giving exists through Qualified Charitable Distributions (QCDs) from Individual Retirement Accounts (IRAs). Unlike regular IRA withdrawals, QCDs provide a tax-advantaged way to support charities while reducing taxable income. Eligible individuals can exclude up to $105,000 from their taxable income through QCDs, enabling them to give back without incurring tax liabilities.
As mandatory minimum distributions (RMDs) from IRAs begin at age 73, using QCDs can also contribute to a lower balance, thus resulting in reduced RMDs in subsequent years. This option not only allows older investors to make impactful donations but also implements a smart method of retirement planning.
As 2024 unfolds, the intersection of charitable giving and savvy financial strategies becomes increasingly vital for investors looking to make a difference. It is evident that the methods employed in contributing to a cause can amplify both the impact of the donation and the donor’s financial position. By embracing the trend of gifting appreciated assets, employing tax deduction strategies, and considering QCDs, individuals can navigate the rich tapestry of philanthropy while upholding their financial well-being. In the spirit of Giving Tuesday and beyond, the message is clear: wealth can be shared more effectively and strategically than ever before.