LEVATUS Perspective | Year End Charitable Gifting Guide

Plan NOW, to up the IMPACT and boost the value of year end charitable gifting.

Photo by Andre Ouellet

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The sweet days of summer always seem like they will last forever, but once the calendar flips to September, it can be a sprint to the end of the year. Between work and school commitments, holidays and family get-togethers, before you have a chance to take a breather the calendar has once again flipped but this time to a brand-new year. 

Once the new year is upon us any chance of doing annual gifting for this tax year has passed, as a result, we find that many try to fit it in during the last week of the year. Thinking through your annual gifting early in the fall, before the holiday rush, can avoid the year-end deadline stress.

Below, you will find a few tips to help you organize your end of year giving:

create a philanthropic strategy to align gifting with your mission statement

Without having a defined philanthropic strategy, donations can feel ad hoc and disconnected from meaningful priorities. To avoid this, LEVATUS recommends aligning your charitable gifts with your personal or family values, interests and motivations. These can change over time, but starting with a focus will ensure our donations have the impact you want. 

Once you have an idea of the areas you would like to support, exploring and researching charities is a great next step. Websites like GuideStar and Charity Navigator can help you research which organizations best suit your needs.

If you don’t currently have a mission statement in place, you are not alone - most people don’t have a well-defined strategy when it comes to gifting. Even if this time of year feels too busy for you to formalize a philanthropic mission statement, it could be a great time to sit down with family members and start the conversations around their passions and interests. These discussions can lay the framework for further development of a formal strategy

Establish and fund a donor advised fund (DAF)

By opening and funding a Donor Advised Fund (DAF), you can separate the tax benefits of charitable gifting from the decision about where to give.

 A DAF is a streamlined and efficient giving vehicle sponsored by a public charity, such as such as Schwab Charitable or Fidelity Charitable, which allows donors to make an irrevocable charitable contribution for which they will receive a tax deduction in the current tax year. Then, over time, they can recommend grants to IRS‐qualified 501(c)(3) public charities of their choice. Any contributions to a DAF of cash or non-cash assets received by December 31 are eligible for a 2023 tax deduction.

optimize tax benefits by strategically gifting cash or non-cash assets

Even though making donations with cash, check or credit card is the most common way of charitable giving, gifting appreciated stocks, bonds or mutual funds can be much more tax-efficient for the donor. By donating assets instead of selling them, no capital gains taxes are owed, thus saving the donor 15% to 20%.

Because you are donating the stock, wash-sale rules don’t apply, so you can purchase new shares of the same security at a higher cost basis, potentially minimizing future tax liability if sold at a later date. Gifting appreciated stock can be particularly helpful for those who receive a portion of their compensation in company stock. By gifting these assets, you can satisfy your philanthropic goals as well as decreasing your concentration and diversifying your portfolio, all while managing the impact on your capital gains tax.

The opposite strategy can be taken with depreciated securities. Donors sell securities with market value less than what they paid, thus locking in a loss for tax purposes. In this process, called tax-loss harvesting, capital losses can be used to offset capital gains and up to $3,000 of ordinary income. Donors can then claim a charitable deduction if they donate cash from the sale proceeds.

plan ahead as some strategies can take time to execute

Because donations must be received by charities (or into a Donor Advised Fund) by December 31 to qualify for charitable deductions on 2023 tax returns, it is important to take into consideration the amount of processing time a more complicated gifting strategy could take. Some of the more advanced gifting strategies listed below, can be extremely impactful, but as they are slightly more complicated, you should  to reach out to your tax and/or financial advisors well in advance of the year-end deadline.     

 Donating non-publicly traded assets: Donors may also contribute low-cost basis, complex and illiquid assets—such as private company stock, restricted stock, real estate, alternative investments, cryptocurrency, or other long-term appreciated property—directly to charity. Contributing non-publicly traded assets to charity, however, involves additional laws and regulations, so investors should first consult their legal, tax, or financial professional.

 Utilizing a Bunching Strategy: This strategy entails concentrating deductions in a single year, then skipping one or more years. This strategy can work well when your total itemized deductions for a single year fall below the standard deduction: Charitable contributions for several years made at once may allow the total of itemized deductions to exceed the standard deduction, making it possible to obtain a tax deduction for at least part of the charitable contributions. This can also be an impactful strategy for donors experiencing a high-income year or preparing for retirement, since you can maximize your tax benefits when you need it.

 Qualified Charitable Distribution (QCD) from an IRA if you are over 70 ½: If you are at least age 70½, have an IRA, and plan to donate to charity this year, you should consider making a QCD from your IRA, which can satisfy charitable goals and allows funds to be withdrawn from an IRA without any tax consequences. If you are over age 73, a QCD can also be used to satisfy your required minimum distribution (RMD)—up to $100,000 per individual.

be aware of the deduction limits

Charitable contributions are deductible for donors who itemize deductions when filing their annual tax returns. In the 2023 tax year, deduction limits for gifts to public charities, including donor-advised funds, are 30% of adjusted gross income (AGI) for contributions of non-cash assets, if the assets were held more than one year. The deduction limit for cash is 60% of AGI for contributions. Contribution amounts in excess of these deduction limits may be carried over up to five subsequent tax years.

don’t forget that your gifting strategy can include gifts to family

The gift tax annual exclusion is the amount that you may give each year to family and friends tax-free and without using any of your gift and estate tax exemption.  Additionally, by staying under these limits, you do not have to file a gift tax return. For 2023, the limits are $17,000 for individuals and $34,000 for married couples.

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ABOUT THE AUTHOR

Jessica Grande is a senior client advisor at LEVATUS with over 15 years of experience in the financial services industry. Her professional background includes high net worth advisory, investment research and wealth planning. Jessica writes articles with her clients’ needs in mind.  She has a particular focus on aligning client values with long-term strategy and planning items in order to achieve financial control.  As a co-founder of LEVATUS and female financial advisor, Jessica is happy to be able to focus on what really matters to clients, whether it entails discussing how wealth can impact children, creating financial empowerment for retirement, or joining a community of like-minded individuals.

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