Top 5 Year-End Charitable Giving Tips: Support the Causes You Care About and Maximize Tax Benefits

For many people, charitable giving is a meaningful way to support the causes they care about while also potentially gaining tax advantages. Whether you’re donating to a local food bank, your town’s library foundation or funding a hockey rink project at your alma mater, strategic charitable giving ensures your generosity has the greatest impact. Here are the top five tips to help you make the most of your charitable contributions.

1. Understand Tax Deduction Rules

To reap tax benefits, your donation must go to a qualified organization recognized by the IRS. Most nonprofits, religious organizations, and educational institutions fall into this category. Contributions to individuals, political campaigns, or certain for-profit entities do not qualify.

Key Points to Remember:

• Keep Records:?Always retain receipts or letters of acknowledgment for donations of $250 or more.
• Itemize Deductions:?To claim charitable donations on your tax return, you must itemize your deductions. However, for many taxpayers, the standard deduction is higher than their total itemized deductions. It's important to calculate both options to determine which provides the greatest tax benefit. A strategy called "bunching" can help—this involves combining multiple years' worth of charitable contributions into a single tax year to increase your itemized deductions for that year. Be sure to consult your tax professional for guidance.
• Understand Limits:?You can deduct up to 60% of your adjusted gross income (AGI) for cash contributions, though this limit can vary depending on the type of donation and recipient organization.

2. Explore Donor-Advised Funds (DAFs)

A donor-advised fund (DAF) is a powerful vehicle for those who want to make giving part of their long-term financial strategy. With a DAF, you contribute assets to an account, receive an immediate tax deduction, and recommend grants to charities over time.

Benefits of DAFs:

• Immediate Deduction, Flexible Timing:?You get the tax deduction when you fund the DAF, but you can distribute the money to charities later.
• Investment Growth:?While in the DAF, your donation can be invested, potentially growing your charitable impact over time.
• Anonymity Option:?You can choose to make grants anonymously if preferred.

DAFs are an excellent option for donors with fluctuating incomes, a windfall year, or a desire to plan multi-year giving initiatives. I personally use Fidelity for our DAF but there are other quality providers out there. Be sure to compare fees and minimums when selecting the best option for you.

3. Donate Appreciated Assets

Contributing appreciated assets, such as stocks, mutual funds, or real estate, can be a smart way to give. When you donate assets that have increased in value, you avoid paying capital gains taxes on the appreciation, while still receiving a tax deduction for the full fair-market value of the asset.

Why This Matters:

• Double Tax Advantage:?You eliminate capital gains tax and claim a charitable deduction.
• Greater Impact:?The charity receives the full value of your asset, not a reduced amount after taxes.

4. Consider using Qualified Charitable Distributions (QCDs)

If you are age 73 or older, qualified charitable distributions (QCDs) offer a tax-efficient way to give. With a QCD, you can transfer up to $105,000 annually from your IRA directly to a charity.

Why QCDs Are a Win-Win:

• Avoid Taxable Income:?Unlike traditional IRA withdrawals, QCDs do not count as taxable income, which can help lower your adjusted gross income (AGI).
• Satisfy RMD Requirements:?For those aged 73 or older, a QCD can satisfy your required minimum distribution (RMD) without increasing your taxable income.

Pro Tip: QCDs must go directly to the charity (not to a donor-advised fund or private foundation) to qualify. Collaborate with your financial advisor or tax professional to ensure all IRS rules are followed.

5. Align Giving with Your Estate Plan

Charitable giving can be a cornerstone of your legacy planning, helping you support the causes you value even after your lifetime. There are several ways to incorporate philanthropy into your estate plan:

Common Strategies:

• Bequests:?Include charities as beneficiaries in your will or trust.
• Charitable Remainder Trusts (CRTs):?Create a trust that provides income to you or your heirs for a specified time, with the remainder going to charity.
• Beneficiary Designations:?Name a charity as a beneficiary on your retirement accounts, life insurance policies, or brokerage accounts.

Estate-focused giving not only furthers your philanthropic goals but can also reduce estate taxes, ensuring more of your assets go toward the causes you support.

Final Thoughts: Maximizing the Impact of Your Generosity

Charitable giving is not just about writing checks. It is about aligning your financial resources with your personal values to make a meaningful difference. By understanding the tax rules, leveraging tools like donor-advised funds, and considering strategies like QCDs or appreciated asset donations, you can amplify your generosity and enhance your financial plan. As I have grown older, I have chosen to concentrate my charitable giving towards causes that mean the most to me and my family, like the Cystic Fibrosis Foundation.

For personalized guidance, consult with a financial advisor or tax professional to ensure your giving strategy aligns with your broader financial goals. Thoughtful planning can turn your charitable intentions into a lasting impact for both you and the causes you care about. It can also help you reduce taxes/contribute more if you have a well thought out strategy.

Ready to Make Your Giving More Impactful?

At Cascade Wealth, we specialize in helping individuals and families integrate philanthropy into their financial strategies. Contact us to learn how we can help you create a giving plan that reflects your values while maximizing benefits.

If you need help reviewing your own personal situation and options, schedule a complimentary consultation with me, a financial advisor specializing in wealth planning for parents who want to provide the best life for their family and still retire well.

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