As we enter 2024, investors have experienced a remarkably rewarding year, with the S&P 500 climbing more than 26%. This impressive growth not only benefits individual portfolios but also creates an opportunity for charitable giving. The annual event known as Giving Tuesday follows Cyber Monday in the holiday tradition, encouraging individuals to allocate a portion of their investment success to charitable causes. In this economic landscape, the approach to giving has evolved, particularly as it pertains to the type and method of assets donated.
Historically, cash was considered the gold standard for charitable donations. However, financial experts emphasize that donating appreciated assets, such as stocks, mutual funds, or even cryptocurrencies, is a far more effective strategy in 2024. According to Brandon O’Neill, a charitable planning consultant at Fidelity Charitable, when donors choose non-cash assets, they not only benefit from a charitable tax deduction but also evade capital gains taxes. This approach not only maximizes the value of the donation but also enhances tax efficiency.
In 2023, contributions to Fidelity Charitable were predominantly in the form of appreciated assets, representing an impressive 63% of total donations. Notably, cryptocurrency contributions reached $688 million as of mid-November 2024, signaling a growing trend among modern donors leveraging digital assets to support their favorite causes.
For taxpayers itemizing their returns—those whose itemized deductions surpass the standard deduction of $14,600 (for single filers) or $29,200 (for married couples filing jointly)—charitable contributions present a valuable opportunity. By donating assets held for over a year, donors can receive a tax deduction based on the current fair market value rather than the asset’s original cost basis. This fundamental difference allows for greater impact on personal tax returns, benefiting both the charity and the donor’s financial situation.
Miklos Ringbauer, a certified public accountant, highlights how taxpayers can unlock the full potential of their donations by contributing high-appreciation assets with low cost bases. This strategy can significantly strengthen their overall tax position while promoting charitable missions.
Charitable donations also serve a dual purpose: they can facilitate the rebalancing of investment portfolios. With some stocks experiencing remarkable gains—such as Palantir Technologies and Vistra Corp. soaring over 300%—donations can help investors manage concentrated holdings that may have increased in value to risky proportions. Christine Benz, Morningstar’s director of personal finance, emphasizes the benefits of diversifying away from employer stock, which may inadvertently inflate risk levels within an investment portfolio.
Considering the dynamism of the stock market throughout 2024, investors are encouraged to reassess their investment strategies. Making charitable contributions can be a proactive measure to reduce risk by shedding some of that concentrated exposure while concurrently supporting charitable endeavors.
Given the current high standard deduction thresholds, donors may benefit from a strategy known as “bunching”. This involves consolidating multiple years worth of donations into a single tax year, which allows them to itemize deductions in that year while taking the standard deduction in other years. This tactic simplifies the donation process by enabling the transfer of appreciated assets into a donor-advised fund, thus allowing donors to allocate resources to multiple charities over time.
Such strategic planning is particularly advantageous for older investors, especially those above 70½ years of age. Making a qualified charitable distribution (QCD) from an IRA can be another effective method of charitable giving. Unlike regular IRA withdrawals, QCDs are excluded from taxable income, provided they are sent directly to a qualified charity by the IRA trustee. In 2024, eligible IRA holders can exclude up to $105,000 from their taxable income through QCDs, a significant opportunity to contribute actively while optimizing tax responsibility.
The economic landscape of 2024 not only calls for prudent investment strategies but also provides an ideal opportunity for strategic charitable giving. By shifting from cash contributions to appreciated assets, donors can optimize their tax positions while making meaningful contributions to charitable causes. The realization that charitable giving can simultaneously serve both philanthropic and financial objectives marks a pivotal transformation in how investors approach their financial legacy. As Giving Tuesday approaches, this comprehensive understanding equips investors to make informed decisions that reflect their values while capitalizing on their successes.