Charitable Gifting Strategies for This Holiday Season

As the holidays approach, Americans prepare to spend time with their families and reflect on the past year. The holiday season also brings out the spirit of charitable giving, which offers the opportunity for tax deductions. Unfortunately, looking at last year’s data, changes to the standard deduction threshold from the Tax Cuts and Jobs Act may have been a factor in the 1.7% overall drop in Americans’ charitable donations. While tax considerations should not drive generosity, if individuals effectively structure their gifts, they can realize the maximum tax benefit while still impacting others.

Many traditionally give to charity by writing a check or giving cash but do not realize other types of assets can be donated. Individuals that hold a portfolio with appreciated securities or real estate can increase their tax deduction by donating these assets instead. If they were to sell their appreciated assets and then give the money to charity, they would be subject to a capital gains tax. If they donate the non-cash assets directly, they can avoid the capital gains tax and deduct the fair market value. The giver saves on taxes, and the receiving charities get a more substantial donation. 

Taxpayers who are close to the standard deduction ($24,400 for married couples and $12,200 for single taxpayers) may want to accelerate their planned giving to maximize the impact of their charitable contributions. As an example, if someone regularly gives $10,000 every year, they may want to consider bundling a few years’ worth of donations together. This allows them to break through the deduction cap and can help mitigate the tax impact of a higher than usual income from bonuses or other short-term gains. 

Individuals that want to receive the tax deduction in one year but distribute the large gift over a few years can establish a Donor Advised Fund (DAF). A DAF is a special fund run by a sponsoring organization that can be used to contribute cash, securities, or other assets to qualified charities. The fund will build value over time, but these earnings are tax-free since contributions are irrevocable. As the fund increases in value, so does the impact of the charitable contribution. While these are just a few ways to make donations more impactful, tax planning experts can offer even more options to make sure holiday cheer goes the furthest.

No matter the amount, your generosity in gifting time and money to worthwhile causes can have a significant impact on your tax liability. While tax considerations should never drive your charitable giving, it makes sense to structure your gifting to maximize the tax benefits. If you have questions regarding your gifting or estate plan, please contact Talley LLP today.

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