As we approach the end of 2024, it’s time for some year-end tax planning. What’s the best strategy to maximize your charitable contributions AND tax savings?
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1) Consider giving appreciated stocks rather than cash
Most people would just write a check to the charities that they support. While cash is always a good way to give, the fact that many people in Silicon Valley own stocks would make giving stocks a valuable option.
Giving stocks with sizable unrealized gains to your charities would make more tax sense than giving cash directly: if you sell the stocks and then give cash, you will have to pay a good amount of capital gain tax first before you can donate the net amount. Instead, you can avoid paying capital gains by donating stocks that you have owned over a year directly and you will be able to deduct the total value of the stocks.
The maximum charitable deduction you can claim each year is usually up to a certain percentage of your AGI. If you have some excess charitable deduction after the limit is applied, you can carry it forward to the next tax year. For more information, please consult with your tax advisor.
2) Donate the cash from the sale of depreciated securities
If you are thinking about getting rid of some of the depreciated securities in your taxable investment portfolio, you can consider selling them first instead of gifting them directly to charities—you can get a capital loss from the sale which can be used to offset your current year’s capital gain or regular income. Any unused capital losses can be carried forward to the following years to offset future income, which will help to reduce the following years’ tax bill. For more information, please consult with your tax advisor.
3) Take advantage of your company’s employee charity match program (when you donate, your employer also donates)
Many companies have established their own employee charity match programs. In Apple’s case, when an employee donates $1 to qualified charities, Apple will match $1, up to $10K.
Some companies are even more generous: Johnson & Johnson will match $2 for each one dollar an employee donates, which means your $1 donation will translate into $3 instantly! It would be a good idea to check with your employer to see if there is a match program before you start thinking about contributing to your favorite charities.
4) The time you spent on volunteering could translate into $$
I know that many people volunteer at their favorite charities on a regular basis. But have you got a chance to check if your employer has adopted a volunteer match program, which means they will donate $$ when you donate your time?
In Apple’s case, for each hour their employees spend on volunteering at a qualified charity, Apple would donate $25 to that charity, which is a great way for you to maximize the contribution to your favorite charities.
5）Bunch your charitable contributions
Last-year’s rule that only those who use itemized deductions can benefit from charitable deduction continues to apply to this year. If you normally use standard deductions and can’t claim charitable deductions, you can consider bunching several years’ contributions in one year if it would make your itemized deductions higher than your standard deductions. You can then skip your charitable contribution in the next couple of years.
You can also choose Donor Advised Fund (DAF) which is basically a simplified charitable foundation. You can donate a chunk of money to your own Donor Advised Fund in a high-income year and get it fully deducted the same year while spreading the actual donation to your favorite charities into following years at a pace that you set. Besides cash, you can also contribute highly appreciated stocks, which will bring more flexibility and tax planning opportunities. For more information, please consult with your tax advisor.
As for those who don’t necessarily like to receive constant reminders from some charities after donating in your personal name, you can choose to stay anonymous while donating through your Donor Advised Fund.
Hope it will help you to donate more effectively and efficiently. For it is in giving that we receive.
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