Giving: A Guide To Year-End Charitable Planning

As the year draws to a close, many people think about pouring your blessings and making a difference through charitable contributions. End-of-year charitable planning is a wonderful opportunity not only to support meaningful causes but also to manage taxes in a tax-advantaged way. However, a meaningful and effective giving strategy doesn’t start with the tax code—it begins with your personal motivations. By clarifying the “why” behind your giving, you can create a charitable impact that’s fulfilling and well-aligned with your values.

Focus on the “Why” Before the “How”

But before diving into the mechanics of tax-saving strategies, it’s essential to understand why you want to give. Reflecting on your motivations can help clarify which organizations or initiatives best fit your values. It also helps you to say no to those organizations that are not a fit for you.  Consider these questions:

What causes resonate with me?  When you read the paper, or your social media threads, what makes you cry, angry, or makes your heart come alive? What organizations do you want to get involved with – or put “boots on the ground”?  Giving money is often easier than giving your time or talents, so considering these will embellish your giving experience.  Understanding where your heart lies helps direct your funds to organizations you’ll be proud to support.

What impact do I hope to make? Decide whether you want to make an immediate impact or create a legacy that benefits future generations. For instance, direct cash donations provide immediate support, while endowments or scholarships create lasting influence.  Check to see if the organization has a “Giving Policy” that directs what happens to cash or to donated investments.

What personal experiences have shaped my values? Many people are inspired to give to causes that reflect personal journeys, whether that’s a fondness for education, experiences with a health challenge or a commitment to supporting veterans. Reflecting on your own story can help make giving more personal and meaningful.

By focusing on the “why,” you’re more likely to feel fulfilled by your donations. Once you have a clear sense of purpose, the “how” of giving—using tax-efficient strategies to maximize impact—becomes more straightforward and beneficial.

Tax-Efficient Charitable Giving Strategies

After establishing the “why,” you can turn to the “how” with strategies that help make your giving as impactful as possible while reducing your taxable income. Here are several tax-efficient methods you can use to enhance your charitable contributions:

Donor-Advised Funds (DAFs) 

Donor-advised funds are a flexible way for people to plan giving over multiple years. With a DAF, you can donate cash, appreciated securities, or other assets and receive an immediate tax deduction, even if the funds are distributed to charities over time. This allows you to make a large charitable donation in a high-income year, taking the full deduction now, and decide later where the funds should go. DAFs are ideal for those who want to plan ongoing support to charities over time.  2024 is going to be a BIG year for capital gains realized in mutual funds, utilizing a DAF can offset your tax burden.

Loading a Donor-Advised Fund (DAF) can be an effective way for the charitably inclined to take advantage of itemized deductions rather than the standard deduction. By “bunching” charitable contributions into a single tax year—loading multiple years’ worth of donations into your DAF—you can potentially exceed the standard deduction threshold, which allows you to itemize your deductions. This strategy enables you to receive an immediate tax benefit for the full amount contributed to the DAF, even if you distribute those funds to charities over several years. For retirees who no longer have large mortgage or dependent-related deductions, loading a DAF is a strategic way to maximize charitable giving and achieve greater tax efficiency.

Gifting Appreciated Securities 

Gifting appreciated stocks, mutual funds, or other securities held for more than a year allows retirees to avoid paying capital gains tax on the asset’s appreciation. Plus, you can deduct the fair market value of the securities if you itemize deductions. This is a tax-smart way to support charity with assets that have significantly grown in value, allowing both the charity and the donor to benefit from the tax savings.

Charitable Remainder Trusts (CRTs)

CRTs allow you to create a lasting charitable legacy while receiving income. With a CRT, you transfer assets into the trust, receive income for a set period (or for life), and ultimately transfer the remaining assets to charity. This provides tax benefits, such as a partial income tax deduction and potential capital gains tax deferral on donated appreciated assets. CRTs offer retirees both income and the satisfaction of knowing they’re creating a long-term gift.

Qualified Charitable Distributions (QCDs)

Retirees aged 70½ or older with IRAs can take advantage of QCDs. These distributions allow you to donate up to $100,000 directly from your IRA to a qualified charity. The benefit? The amount donated does not count as taxable income, and for those over age 73, it can satisfy required minimum distributions (RMDs) without increasing adjusted gross income. QCDs offer retirees a fantastic way to support causes without impacting Social Security tax brackets or Medicare premiums.  If you have already taken your RMD for 2024, keep it in mind when the calendar turns to 2025.

As the end of the year approaches, be mindful of tax deadlines to ensure your donations qualify for this year’s tax return.  Donations must be completed by December 31 to qualify for the current tax year. This includes cash donations, QCDs, DAF contributions, and gifting appreciated securities.

If you are planning to use a QCD to meet your RMD, make sure it’s completed well before December 31, as processing times may vary.

End-of-year charitable planning can be highly rewarding, especially when approached thoughtfully. By taking time to explore your motivations, you will ensure that your charitable giving brings joy and satisfaction, along with a positive impact. Then, by leveraging tax-efficient strategies, you can make the most of your resources and support causes that resonate with you well into the future. Make sure you discuss the various options with your financial professionals to discern the best fit for your charitable intentions.  A Certified Financial Planner with a “life planning” perspective will help you with your “why” along with drilling down on the lifestyle, liquidity, longevity and legacy numbers to optimize the impact of your generosity.