As 2024 ushers in a robust climate for investors, many find themselves faced with a unique opportunity: sharing their financial gains with charitable organizations. With the S&P 500 rising over 26%, this year has proven lucrative for numerous portfolios. In this context, the day known as Giving Tuesday—immediately following Cyber Monday—presents a compelling occasion for philanthropically minded individuals to reflect on their giving strategies. By considering alternative forms of charitable donations, investors can significantly enhance their contributions while minimizing tax liabilities.
Traditionally, cash donations have dominated charitable giving, but the trend is shifting rapidly. According to Brandon O’Neill, a consultant at Fidelity Charitable, investors can reap substantial rewards from donating appreciated assets instead. The strategy of giving stocks, mutual funds, or even cryptocurrency directly can yield both a tax deduction and help avoid capital gains taxes—an advantage that cash donations do not offer.
With an impressive 63% of contributions to Fidelity Charitable in 2023 comprising non-cash assets, donors are recognizing the financial wisdom of this approach. In addition to the financial benefit, the emotional satisfaction of contributing significant resources to a charitable cause adds a rewarding dimension to this strategy. For donors educated about their financial decisions, the advantage lies not only in making a greater impact with their contributions but also preserving more wealth for themselves through tax efficiencies.
Understanding Tax Deductions on Donated Assets
For individuals who itemize their deductions—a method that remains relevant for many high-income earners—the ability to claim a write-off on charitable donations further enhances the attractiveness of donating appreciated assets. When an asset has been held for over a year, donors can direct brokers to transfer the asset to a charity, calculating tax deductions based on the asset’s fair market value at the time of the donation.
This tactic underscores the importance of holding onto investments that have shown significant appreciation. By donating those with low cost basis and high market value, taxpayers maximize their deduction and minimize their taxable income. Miklos Ringbauer, a certified public accountant, affirms this sentiment by emphasizing the greater impact these donations have on the donor’s tax returns, positioning them as strategic financial tools.
As the year progresses, and certain stocks, such as Palantir Technologies and Vistra Corp., witness remarkable gains of over 300%, the landscape of decision-making for charitable donations presents itself as even more critical. Donors with rapidly appreciating stocks find that their charitable contributions not only enhance the operational capabilities of their chosen organizations but also serve to rebalance their investment portfolios.
Christine Benz, director of personal finance and retirement planning at Morningstar, notes that such donations can alleviate the risk tied to over-concentration in specific securities. Particularly for those receiving compensation in company stock, divesting through charitable giving becomes a prudent method for diversification and enhanced financial security.
With the current high federal standard deduction, many investors might find it advantageous to adopt a strategy known as “bunching,” wherein they group several years’ worth of charitable donations into one financial year. This approach allows for itemized deductions during some years while utilizing the standard deduction in others. Transferring appreciated assets to a donor-advised fund could streamline this process, affording donors greater control over their allocations.
Additionally, more seasoned investors—particularly those over the age of 70 1/2—should consider making qualified charitable distributions (QCDs) from their individual retirement accounts (IRAs). Relevant in the 2024 financial landscape, QCDs enable retirees to make direct contributions to charities without incurring taxes on the withdrawal, effectively allowing them to lower their taxable income. With eligible IRA owners able to exclude up to $105,000 in QCDs from taxable income, this option is not only tax-efficient but also affirms a mature strategy of philanthropy.
As investors in 2024 witness significant growth in their portfolios, adopting a strategic approach to charitable giving can enhance both their financial outcomes and their societal impact. By prioritizing non-cash assets, understanding tax implications, identifying valuable contributions, and implementing smart philanthropy strategies, individuals can responsibly share their gains and lay the groundwork for a positive legacy.