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Make the most of your 2024 year-end giving
September 18, 2024
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If you are considering making a charitable contribution before the end of 2024, consider these strategies to maximize the impact of your donation.
What time of year is best to make charitable contributions?
We’ll start by saying that it’s always a good time to give, no matter the time of year. But, the end of the year can be one of the most impactful times to give—the last few months of the year is when many charities need extra help.
Now is also a good time to reflect on any significant taxable events you experienced (or may experience) throughout 2024. Did you face increased taxable income? Do you have a highly appreciated investment portfolio that you’d like to rebalance? Are you exploring selling long-term highly appreciated property, business interests, or other illiquid assets by the end of the year? By making an informed charitable contribution before year-end giving deadlines, you may qualify for a current-year deduction if you itemize your taxes, potentially offsetting some or all tax liabilities from those events.
Are there tax changes coming?
While it is a United States election year and uncertainty may exist, we anticipate the current tax landscape to remain the same through the end of 2024, as there does not appear to be anything on the horizon that would fundamentally affect current charitable contribution tax rules.
That being said, the Tax Cuts and Jobs Act of 2017—which effectively doubled the annual standard deduction amount when it was passed by Congress—will expire at the close of 2025. It is possible that we may see new tax proposals next year, with any potential corresponding changes taking shape in 2025 or 2026.
In summary: There’s no reason to hesitate on donating in 2024.
How can a donor-advised fund benefit me and my charitable giving?
Whether you’ve experienced a significant taxable event or you already planned to help a charity by year-end, there are several ways to give—you can donate cash, check, credit card, or even non-cash contributions.
One of the easiest methods to give is through a donor-advised fund (also known as a “DAF”): a simple, tax-smart giving vehicle that can help you increase your giving power. DAFs are particularly useful when it comes to contributing appreciated non-cash assets you may wish to donate, including stocks, bonds, ETFs, or even more complex illiquid assets like real estate or a privately held business.
A DAF works like this: You start by making a charitable contribution to your DAF account (whether that’s simply cash or something more complex). Because a donor-advised fund is a 501(c)(3) public charity itself, your contribution may enable you to claim a current-year tax deduction. As soon as funds are in your DAF account, you have a few options. You can recommend grants to qualified U.S. charities of your choice right away, or you may choose to leave a portion of the funds in the account. Again, because donor-advised funds are public charities themselves, those funds left in a DAF can be invested for potential tax-free growth and granted out to charities in the future.
Do I get a tax deduction if I make a charitable donation?
When making a charitable contribution, you’re not only benefiting an organization you love—you may also be able to claim a deduction on your tax return. Generally, to receive a tax deduction for a donation to an eligible charity, you must itemize your deductions. There are numerous limits on how much you can deduct, so be sure to talk with your tax advisor or see the IRS’s website for more information. (This includes deductions from donations made to donor-advised fund accounts.)
Can I deduct charitable contributions if I take the standard deduction?
You can only deduct charitable contributions from your taxes if you itemize your deductions. Whether you take the standard deduction or itemize deductions is based on which deduction provides you with the largest tax benefit. If your total itemized deductions are greater than your standard deduction ($14,600 for single filers or $29,200 for joint filers in 2024), then you’ll get the best tax benefit from itemizing.
“Bunch” two or more years of donations into one year
If you’re planning a charitable contribution in 2024, take the time to do a quick calculation to see if your itemized deductions will push you above your standard deduction. If they won’t, you may want to consider taking the tax-smart approach of “bunching,” or combining multiple years’ worth of charitable contributions into one year.
Here’s how bunching works: If it suits you financially, you might consider reaching into future planned donations to bolster your 2024 contribution to a point where your itemized deductions surpass your 2024 standard deduction.
Let’s review a hypothetical example. Say Denise just got a promotion and wants to make an annual $5,000 donation to her favorite charity. She’s a single tax filer and, even with the $5,000 donation, she won't exceed the standard deduction (see Option 1). One way she may be able to receive a tax benefit is by bunching two years’ worth of donations into one year (see Option 2). By bunching her contributions, Denise could have given the same amount to charity while realizing additional tax savings over two years.
This hypothetical example is only for illustrative purposes.
Each option’s total two-year deduction is the sum of the option’s 2023 and 2024 deduction amounts. The $3,150 in additional tax deductions is the difference between the two options’ total two-year deductions.
How can a donor-advised fund help with the bunching strategy?
By employing the bunching strategy with a DAF, you’re able to give two or more years’ worth of donations and receive a tax deduction the year you made the donation (if you itemize). Because those contributed funds are then earmarked for charity, you then have the flexibility to recommend grants out of the account over several years to your desired charity. The charity won’t see any difference in the amount they receive from you annually—they receive the grant on the schedule you recommend. By contrast, if you gave a single large donation directly to the charity, it may expect future annual donations of the same size, causing potential planning issues.
Plus, remember that funds in a DAF account can be invested for potential tax-free growth, potentially generating more funds for charity over time.
How can I maximize the impact of my charitable contributions?
Cash isn’t always king. If you’re donating cash to charity, it likely means you have already paid taxes on those funds, like regular income tax or investment capital gains tax. On the other hand, if you contribute an appreciated asset held long-term, then you’re donating a pre-tax asset, potentially eliminating taxable income and allowing you to receive a larger tax deduction.
Here’s how you can maximize your charitable donations by contributing non-cash assets held more than a year:
- If you contribute a highly appreciated non-cash asset—like a publicly traded security—held for more than a year, you potentially eliminate the capital gains tax you’d incur if you sold the asset yourself. Depending on your long-term capital gains tax rate, that can increase the amount available for charity by up to 20%.
- If you itemize your tax deductions, you may be able to claim a fair market value charitable deduction for the year you made the non-cash asset donation.
- Why is it important to have held the asset for more than one year? For the most part, if a contributed asset is held for a year or less, the IRS limits your deduction to the asset’s cost basis, rather than its potentially higher fair market value (if its value has appreciated).
Using non-cash assets to maximize your giving
Here’s an example. Let’s say Tyson currently owns $50,000 of a stock (a non-cash asset), which he bought years earlier for $5,000. Tyson is in the 24% ordinary income tax bracket and the 15% long-term capital gains tax bracket. If he sold the stock and donated the proceeds to charity, he’d be facing a $45,000 long-term capital gain (Option 1 below). But, if Tyson contributed the $50,000 in stock directly to charity or his donor-advised fund account, the contribution would not be subject to capital gains tax, generating not only additional tax savings for Tyson, but also additional funds available to charity.
This hypothetical example is only for illustrative purposes.
The example does not take into account any state or local taxes or the Medicare net investment income surtax.
The long-term capital gains taxes paid shown in Option 1 is the stock’s capital gain ($45,000) multiplied by the donor’s federal long-term capital gains tax rate (15% in this example). The charitable contribution and tax deduction shown in Option 1 is the stock’s fair market value minus the long-term capital gains taxes paid. The tax savings shown for each option is the tax deduction, multiplied by the donor’s marginal income tax rate (24% in this example), minus the long-term capital gains taxes paid.
How can a donor-advised fund help with non-cash charitable contributions?
Non-cash assets aren’t limited to publicly traded securities, and they’re not always as simple to donate. Charitable contributions can be real estate, privately held business interests, life insurance, and much more. Many of those other options are illiquid with extra layers of complexity.
By working with a donor-advised fund, it’s much easier to contribute complex assets. A DAF can minimize the complexity associated with your donation, removing some of the processing burden from both you and the organizations you wish to ultimately support. Keep in mind that many complex assets require some due diligence prior to processing—another great reason to consider working with a donor-advised fund.
What should I consider before making a contribution?
If you’re planning to make a contribution before the end of 2024, here’s what you should keep in mind.
Year-end deadlines and processing times
The donation deadline for a 2024 tax deduction is December 31, but it can often take time for your donations to a DAF to be processed. Know that some assets, especially certain non-cash assets, have longer processing lead times. We suggest you start planning your giving early to avoid any possible delays.
IRS limits on charitable deductions
Keep IRS limits in mind as you plan your year-end giving. Tax deductions for charitable donations are generally limited to 50% of your adjusted gross income (AGI). While the limit increases to 60% of AGI for cash donations, the limit decreases to 30% of AGI for donations of appreciated non-cash assets held more than one year.
Other effective donation strategies for those of retirement age
If you’re of retirement age, there are additional giving strategies to consider.
- If you’re 59 ½ or older with tax-deferred retirement accounts (like traditional 401ks or IRAs), consider if a charitable donation—and therefore, charitable deduction if you itemize your taxes—can help you offset tax liabilities on account withdrawals.
- If you’re 70 ½ or older with a traditional IRA, you might consider making a Qualified Charitable Distribution (QCD). You can direct up to $105,000 per year from your traditional IRA to an operating public charity (unfortunately, this excludes a donor-advised fund).* Those QCD funds aren’t considered taxable income for you, and, if needed, you can use a QCD to satisfy your IRA’s 2024 required minimum distribution (up to $105,000). However, you won’t get a tax deduction for a QCD because the amount donated was not included in your income.
How DAFgiving360™ can help
Remember: How you give can matter, especially when it comes to being tax-smart. Donor-advised funds are one of the fastest growing giving vehicles in the U.S., and for good reason. Giving with a DAF account can make giving easier and potentially more impactful.
DAFgiving360 is one of the largest national providers of DAF accounts. DAFgiving360 was founded in 1999 as a resource to help donors achieve maximum impact with their charitable giving. The organization’s mission is to increase charitable giving in the U.S. DAFgiving360 does this by providing the tax-smart and simple giving solution of a DAF account to donors and financial advisors, as well as providing related philanthropic resources.
Teams at DAFgiving360 are equipped with specialized knowledge on contributing a multitude of asset types to charity. They can support you and your advisors through each step of your contributions, from the initial consultation through processing your year-end contributions.
- Contact DAFgiving360 or request an information kit
- Talk to a charitable specialist at 855-966-3764
- Follow DAFgiving360 on LinkedIn
Coauthors:
Caleb Lund, CAP®
Director of Charitable Strategies Group
DAFgiving360
Hayden Adams, CPA, CFP®
Director of Tax Planning and Wealth Management
Schwab Center for Financial Research