Throughout 2024, the financial markets have been kind to investors, presenting a unique opportunity for those looking to give back to their favorite charities. After the hustle of Cyber Monday, Giving Tuesday rolls in, serving as a reminder to contemplate donating to causes close to your heart. With the S&P 500 climbing over 26% this year, offering cash isn’t necessarily the most strategic option. Consider directly gifting appreciated assets—think stocks, mutual funds, or even cryptocurrency—as a smarter way to spread the joy.
Brandon O’Neill, a charitable planning consultant with Fidelity Charitable, highlights this strategy: “Previously, cash topped the list of assets contributed to the program. Now, by gifting an appreciated asset, you not only secure a tax deduction but also duck the capital gains tax hit.” Investors face capital gains tax on any appreciation when cashing out their stocks, but transferring non-cash assets like stocks circumvents this. In 2023, such assets comprised 63% of contributions at Fidelity Charitable, with cryptocurrency donations alone hitting $688 million as of November 19.
Charitable deductions offer additional advantages; those itemizing deductions that surpass the standard deduction of $14,600 for singles or $29,200 for couples filing jointly in 2024 can claim a write-off for their donations. If you’ve held an asset for over a year, simply instruct your broker to donate it to your chosen charity, basing your tax deduction on its fair market value at the time of the donation. The top assets for tax savings typically have low cost bases and significant appreciation.
“The taxpayer benefits from the asset’s fair market value rather than the cost basis, which substantially impacts their tax return,” explains Miklos Ringbauer, a certified public accountant at MiklosCPA in Los Angeles. To illustrate, take a look at the impressive run of S&P 500 stocks this year. Companies like defense tech firm Palantir Technologies and energy powerhouse Vistra Corp. have surged over 300%.
Beyond the charitable impact, these donations can enhance portfolio management. They help reduce oversized concentrations in surging positions and enable employees with stock compensation to diversify, according to Christine Benz, Morningstar’s director of personal finance and retirement planning. “Employer stock is often a prime candidate for this kind of giving as it generally introduces significant portfolio risk due to concentration. Although we’ve seen widespread gains this year, U.S. large-cap stocks have particularly excelled, making them a logical choice for minimizing risk while contributing charitably,” Benz adds.
There are two approaches to consider for your giving strategy. With today’s high standard deduction, many donors might benefit from “bunching” several years’ worth of donations at once. Transferring appreciated assets into a donor-advised fund can streamline your giving process, allowing you to grant to multiple organizations with ease. “Using a bunching strategy, you can alternate between itemizing deductions one year and taking the standard deduction the next,” suggests Benz.
For older investors, especially those over 70½, making a qualified charitable distribution (QCD) from an individual retirement account could be the optimal move, assuming funds aren’t needed for personal expenses. While IRA withdrawals incur taxes, QCDs are tax-free, provided they are sent directly to a charity by the account trustee. In 2024, eligible IRA holders can exclude up to $105,000 in QCDs from their taxable income. Since required minimum distributions (RMDs) from IRAs don’t start until age 73, initiating QCDs at 70½ can help reduce your account balance, thereby decreasing future RMDs, Benz advises.
