The year 2024 has proven to be a boon for investors, with significant gains in the stock market offering an excellent opportunity to maximize charitable giving. While the holiday season often emphasizes enthusiasm for shopping and gift-giving, it also presents a chance for investors to reflect on their philanthropic efforts. With events like Giving Tuesday following Cyber Monday, it’s an ideal moment to promote generosity, particularly in the context of effective financial strategies.
As the S&P 500 surges over 26% this year, investing in charitable contributions has taken on a new dimension. Investors are encouraged to consider donating appreciated assets—such as stocks, mutual funds, or cryptocurrencies—rather than cash. This shift is fueled by both economic incentives and tax benefits linked to the donation of assets that have gained in value. Brandon O’Neill, a charitable planning consultant at Fidelity Charitable, highlights this trend by noting that cash once dominated charitable contributions, but non-cash assets now comprise a significant portion of donations.
Donating appreciated assets allows individuals to not only enjoy a tax deduction but also avoids the burden of capital gains taxes that typically arise from selling such assets. In 2023, 63% of contributions to Fidelity Charitable came in the form of non-cash gifts, indicating a substantial shift toward more strategic forms of charitable giving. The rise of cryptocurrency donations, totaling an impressive $688 million as of mid-November 2024, showcases the evolving landscape of charitable contributions.
A closer look at the tax implications reveals a compelling argument for donating appreciated assets. Taxpayers who opt for itemizing their deductions can take advantage of write-offs corresponding to their charitable donations. If donors have held an asset for over a year, they can instruct their brokers to give it away to their chosen charity, and the deduction is based on its fair market value at the time of the donation, rather than its original purchase price. This discrepancy can lead to significantly greater deductions for taxpayers, particularly those who have invested in assets with strong appreciation.
Miklos Ringbauer, a certified public accountant, elaborates on the financial impact of such donations, emphasizing that taxpayers benefit from the fair market value rather than the cost basis of the asset they contribute. This strategy highlights how wealthy investors can leverage their portfolios not just for personal gain but for philanthropic efforts as well.
Charitable giving is not merely an act of generosity; it can also be an effective tool for portfolio management. Many investors find themselves in need of diversifying their holdings due to the concentrated positions that come with successful investments. By donating appreciated stocks or other assets, individuals can reduce their exposure in high-performing sectors and ensure a more balanced investment strategy.
Christine Benz, a personal finance and retirement planning expert at Morningstar, notes that employer stocks are particularly prone to concentrating risk in an investor’s portfolio. By donating such stocks, investors can mitigate the risks associated with heavy concentration and use the proceeds from donations to further diversify their holdings. With U.S. large-cap stocks poised for strong growth in 2024, philanthropic contributions can simultaneously serve the dual purpose of wealth maintenance and social impact.
Given the relatively high standard deduction limits for 2024, many individuals may find it beneficial to adopt a strategy known as “bunching.” This approach involves consolidating several years’ worth of charitable donations into a single year to itemize deductions more effectively. By transferring appreciated assets into a donor-advised fund, investors can facilitate streamlined donations across various organizations, maximizing their tax efficiency.
For older investors—especially those aged 70 1/2 and above—a qualified charitable distribution (QCD) from an IRA can be a particularly advantageous route. This allows them to contribute directly to charities from their retirement accounts without incurring taxes on the withdrawn amounts. In 2024, eligible IRA owners can exclude up to $105,000 in QCDs from their taxable income. This strategy not only helps reduce the balance in the IRA, thereby lowering future required minimum distributions, but also aligns with the investor’s philanthropic goals.
As 2024 unfolds, savvy investors have a remarkable opportunity to bolster their charitable efforts while simultaneously optimizing their financial positions. By understanding the nuances of donating appreciated assets, leveraging tax benefits, and employing strategic gifting techniques like bunching and QCDs, individuals can make a lasting impact on their communities. Ultimately, the combination of abundant market conditions and enlightened financial practices ensures that generosity in giving can be both rewarding and beneficial for all parties involved.