Tax-Smart Strategies for Annual Charitable Giving

January 26, 2024 Austin Jarvis
Achieve greater impact for the causes you care about by pursuing tax-efficient charitable giving strategies.

Individuals and families who have accumulated significant wealth over a lifetime often see philanthropy as an important part of their legacy. Involvement with an arts institution, a passion to preserve wildlands, a drive to support vital community services, or a desire to unite family members around a shared cause—any of these can motivate a meaningful charitable project.

Whatever your reason for giving, acting with tax efficiency can help maximize your gifts—and your impact. Here are five tax-smart strategies that can help boost your annual charitable giving.

1. Donate appreciated assets

When you donate an asset that has increased in value—such as stock or a piece of real estate—there is a double tax advantage:

  • You're able to avoid the capital gains taxes you would have otherwise owed if you sold the asset then donated the proceeds to charity, and the charity itself can sell the assets without any tax implications. 
  • You get a deduction for the donation based on the fair market value of the asset.

To get this favorable tax treatment, assets must have been held for a year and a day before they are donated. The deduction for non-cash donations is capped at 30% of your adjusted gross income (AGI), versus 60% of AGI for charitable donations made in cash. But if you make a large donation that exceeds your deduction limits in a single year, you may be able to carry over excess amounts for up to five tax years. 

2. Open a donor-advised fund

Another option if you have substantial appreciated assets—such as stocks, bonds, business interests, or even art and other collectibles—is to donate them to a donor-advised fund, which sells those assets on the open market and grants the proceeds to charities according to your instructions. Whether you donate cash or appreciated assets, you can claim the deduction for the fair market value of your gift in the year you make the donation.1

The other advantage of a donor-advised fund is that you don't have to decide right away which organizations will benefit from your donations—you can take your time in determining which charities to support. Or perhaps as a way of establishing a spirit of giving among future generations, you may involve family members and heirs in discussing the philanthropic legacy you hope to create, sharing your motivations and intentions while also learning about theirs. You may even be able to name a successor adviser for your donor-advised fund as part of your estate plan.

3. Donate proceeds from losses

Of course, securities you own may have potentially lost value. If some of your stocks have declined below their cost basis—generally the price you paid for the shares—it's better to sell them first and donate the proceeds. Here's why:

  • Realizing losses allows you to offset capital gains you may have realized in the same tax year. If your losses exceed your gains, you can also use them to offset up to $3,000 of ordinary income—and you can carry forward any remaining losses to offset gains and/or income in future tax years. 
  • Once you sell the shares, you can donate the proceeds to claim a charitable deduction.1 And because the proceeds are a cash donation, they qualify for the higher deduction cap (60% of AGI).

4. Make a qualified charitable distribution

Retirees who have accumulated significant tax-deferred savings may find that their required minimum distributions (RMDs) will push them into a higher tax bracket. If that's a concern, you can satisfy all or part of your annual RMD by giving up to $105,000 for 2024 (indexed for inflation) to a qualified public charitable organization via a qualified charitable distribution (QCD). Doing so keeps the funds from becoming taxable income or adding to your estate, which can help keep taxes in check.

RMDs don't kick in until age 73 (75 in 2033), but you can make QCDs once you reach age 70½. Making QCDs prior to RMD age not only helps support your philanthropic interests, but may also reduce your future RMDs and help with your overall tax bracket management. 

5. Fund a charitable remainder trust

Placing assets into a charitable remainder trust (CRT) is a strategy that allows donors to make a tax-deductible gift to charity, while also generating income for themselves or their heirs. Here's how that typically works:

  1. You transfer appreciated assets or property to an irrevocable CRT and receive a tax deduction for the year in which the donation was made. 
  2. A designated trustee (appointed by you) sells the assets, paying no capital gains, and reinvests the proceeds.
  3. The trustee pays you or another noncharitable beneficiary an income for a set number of years or for life. (Note: If the noncharitable beneficiary is anyone other than you or your spouse, gift taxes may apply.)
  4. At the end of the trust's term, the remaining assets go to one or more chosen charities. (A donor-advised fund can also be designated to receive a CRT's remainder funds.)

A qualified estate-planning attorney can help you decide whether a CRT is right for your philanthropic and estate-planning goals.

Adding to your impact

There's a lot of need in the world, and it makes sense to want your giving to do the most good. To get maximum impact from the wealth you devote to charitable goals, you need to be tax-efficient. Sound tax strategies can dramatically affect how much of your money ultimately lands with the causes you favor. 

Contact your financial or wealth consultant to discuss strategies that might work best for your unique philanthropic goals.

Contact your financial or wealth consultant to discuss strategies that might work best for your unique philanthropic goals.

1Assuming you itemize your deductions and meet the adjusted gross income requirements.

The information provided here is for general informational purposes only and should not be considered an individualized recommendation or personalized investment advice. The investment strategies mentioned here may not be suitable for everyone. Each investor needs to review an investment strategy for his or her own particular situation before making any investment decision.

All expressions of opinion are subject to change without notice in reaction to shifting market conditions. Data contained herein from third-party providers is obtained from what are considered reliable sources. However, its accuracy, completeness, or reliability cannot be guaranteed.

Examples provided are for illustrative purposes only and not intended to be reflective of results you can expect to achieve.

Investing involves risk, including loss of principal.

The information and content provided herein is general in nature and is for informational purposes only. It is not intended, and should not be construed, as a specific recommendation, individualized tax, legal, or investment advice. Tax laws are subject to change, either prospectively or retroactively. Where specific advice is necessary or appropriate, individuals should contact their own professional tax and investment advisors or other professionals (CPA, Financial Planner, Investment Manager) to help answer questions about specific situations or needs prior to taking any action based upon this information.

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