As the year draws to a close, now is an excellent time to revisit your charitable giving plans and consider opportunities to make an even greater impact. For many families, charitable giving is an important part of their financial lives. It provides an opportunity to support organizations and causes they care about while reflecting the values they hope to pass along to future generations.
With year-end approaching, a little thoughtful planning can help ensure that your generosity is both meaningful and tax efficient. Here are several strategies worth considering before December 31.
1. Consider Donating Appreciated Securities Instead of Cash
If you own stocks, mutual funds, or other investments that have appreciated significantly, donating those assets directly to charity may be more advantageous than making a cash contribution.
By gifting appreciated securities held for more than one year, you can generally avoid recognizing the capital gains that would otherwise arise from selling those investments. Depending on your circumstances, you may also qualify for a charitable income tax deduction based on their fair market value, subject to applicable limitations.
This approach can be particularly valuable for investors with concentrated stock positions or substantial unrealized capital gains. Timing is important here as many custodians have year-end cut-offs for these sorts of transactions. So don’t delay if this is something that you are interested in exploring or utilizing.
2. Take Advantage of Qualified Charitable Distributions (QCDs)
For individuals age 70½ or older, a Qualified Charitable Distribution can be an especially effective way to support charitable organizations.
A QCD allows eligible individuals to transfer funds directly from an IRA to a qualified charity without including the distribution in taxable income, provided applicable requirements are satisfied.
For those subject to Required Minimum Distributions (RMDs), QCDs can also satisfy all or part of that annual obligation.
Unlike traditional charitable deductions, QCDs can provide a tax benefit even if you do not itemize deductions. However, distributions to donor-advised funds and certain other charitable vehicles are not eligible.
3. Don’t Overlook Employer Matching Gifts
One of the simplest ways to increase your charitable impact is to take advantage of an employer’s matching gift program.
Many companies match charitable contributions made by employees, and some extend these benefits to retirees or spouses.
Before making your year-end contributions, check whether your employer offers a matching program and whether there are deadlines or annual limits.
In some cases, a simple matching request can double the impact of your charitable gift at no additional cost to you.
4. Explore the Benefits of a Donor-Advised Fund
For individuals and families who make charitable contributions regularly, a donor-advised fund (DAF) can provide flexibility and simplify the giving process.
A DAF allows you to make an irrevocable charitable contribution, potentially receive an immediate tax deduction, and recommend grants to qualified charitable organizations over time. (This can be a great way to “pre-fund” your future charitable giving.)
This can be particularly useful in years when income is unusually high, such as following the sale of a business, the realization of significant capital gains, or another substantial financial event.
A donor-advised fund can also serve as a vehicle for involving children and grandchildren in family philanthropy, creating opportunities to discuss shared values and charitable priorities.
5. Evaluate the Timing of Your Charitable Contributions
The timing of charitable gifts can make a meaningful difference in their tax efficiency.
Rather than making similar contributions every year, some taxpayers may benefit from combining several years of planned giving into a single tax year; what we call “bunching”.
This approach can be especially effective when contributions are coordinated with other itemized deductions or years of unusually high taxable income.
Recent changes to federal tax rules make it particularly important to evaluate the timing and structure of charitable gifts rather than assuming that the same approach will work every year.
6. Review Your Charitable Commitments and Long-Term Goals
Year-end planning isn’t solely about tax deductions. It’s also an opportunity to reflect on whether your charitable giving continues to align with your personal values and financial priorities.
Consider reviewing the organizations you support, any outstanding charitable pledges, and the impact you hope to make in the years ahead.
For families with more substantial philanthropic goals, this may also be an appropriate time to consider charitable trusts, family foundations, or other strategies designed to create a lasting legacy.
A Thoughtful Approach to Giving
Charitable giving is most meaningful when it reflects what matters most to you.
Whether your goal is to support your community, advance a cause you believe in, or establish a tradition of philanthropy within your family, thoughtful planning can help you accomplish more with the resources you choose to give.
As you consider your year-end charitable contributions, we encourage you to speak with your Twelve Points advisory team about opportunities to align your giving with your broader financial, tax, and estate planning objectives.
The information presented is for educational purposes only and should not be considered individualized tax or legal advice. Charitable giving strategies should be evaluated in consultation with your financial, tax, and legal advisors.
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