How to create a giving plan that benefits both the donor and the chosen charity.

Creating a year-end gifting plan:

An important first step in creating a year-end giving plan is to review the basic tax benefits or incentives available to you. The first benefit is the charitable deduction, which can reduce your taxable income if you itemize. Overall deductions for donations to public charities, including donor-advised funds, are generally limited to 50% of your adjusted gross income. The limit increases to 60% of AGI for cash gifts, while the limit for appreciated non-cash assets held more than one year is 30% of AGI. If your 2023 contribution and deduction exceed these AGI limits, the amount above limits may be carried over for up to five subsequent years. Your instinct may be to donate cash, but donations of appreciated non-cash assets held more than one year can help you give more to charity in two ways:

  • First, regardless of whether you itemize deductions or take the standard deduction, you potentially eliminate the capital gains tax you would incur if you sold the asset first and donated the proceeds. This could increase the amount available for charity by up to 20%.
  • Second, you may generally claim a charitable deduction for the fair market value of the asset, if you itemize, and may choose to pass on that income tax savings in the form of more giving.
  • Finally, if you are age 70½ and older and have a traditional IRA, you can consider a special tax benefit available with your account: directing up to $100,000 of Qualified Charitable Distributions (QCDs) in 2023 to operating charities (excluding donor-advised funds) tax-free. While withdrawals from traditional IRAs are taxable income, QCDs are not. QCDs can also be used whether you take the standard deduction or not.

Consider bunching charitable gifts for a large tax year or to hurdle the standard deduction:

Knowing the basic tax benefits, your next question may be about how much to give to charity this year. The amount depends on your specific financial situation, whether you have large taxable events for 2023, and your desired charitable impact. Another important consideration is whether you plan to itemize or take the standard deduction. For 2023, the standard deduction is $13,850 for single filers and $27,700 for married couples filing jointly. There also is an additional standard deduction for being age 65 or older or blind: $1,850 if your filing status is single, and $1,500 per person if your status is married filing jointly. If your total itemized deductions are below those amounts, you may find it beneficial to “bunch” your 2023 and 2024 charitable donations together in 2023 to exceed your 2023 standard deduction. You could then itemize deductions on your 2023 tax return and take the standard deduction for 2024 taxes. This strategy may produce a larger total deduction over two years than two years of standard deductions.

Choose investments to find the most tax-effective and high impact asset to donate:

As you consider how much you want to give to charity this year, also think about what you have to give. With help from your financial or tax advisor, identify non-cash assets you own that have appreciated in value and assess your potential tax liability if you were to sell the assets. For instance, certain assets may have significantly appreciated over time and may result in a substantial capital gains tax burden upon sale, making them ideal assets to donate. Conversely, assets that are still in a growth phase may be better retained to continue accruing gains. Appreciated non-cash assets to consider for donation include but not limited to: Stocks, ETFs, mutual funds, bonds and Real Estate.

Decide on when may be most impactful for you to give:

Consider segmenting your charitable goals two ways: strategies for the current year and for the future, including extending your charitable giving beyond your lifetime.

  • Giving now: This allows you to witness the impact of your gift, providing a sense of fulfillment and strengthening your connection to the causes you support. Additionally, you may be able to claim an immediate charitable deduction for your donation (if you itemize), potentially eliminate capital gains tax if a donation is an appreciated non-cash asset held more than one year and give IRA assets tax-free through QCDs if you are at least age 70½.
  • Giving later: Like designating a charity as a beneficiary of your retirement accounts, or Life Insurance policy including potentially designating a portion of your funds to a Charitable Remainder Trust. These approaches allow you to retain control over assets during your lifetime while ensuring that your charitable intentions are fulfilled upon your passing. You may also enjoy estate tax benefits and potential income tax savings for yourself or your beneficiaries in the future. The choice about when to give depends on your charitable goals and consulting with a tax advisor or financial advisor can help you determine the best approach.

Prioritize your donation based on years with large taxable events:

If you experience a large taxable event, contributing a portion of your assets can be an effective way to reduce your taxable income, offset or potentially eliminate capital gains taxes, and maximize support of your favorite charities and causes. Some scenarios where giving may reduce unexpected tax liabilities are:

  • Unusual income year: Maybe you received a large bonus or sold a home or business. In these scenarios, charitable giving can provide a valuable tax benefit. If you make tax-deductible donations to charities and itemize deductions, you may be able to reduce your taxable income or potentially offset income taxes or capital gains taxes. This can be especially advantageous if you find yourself in a higher tax bracket due to increased earnings.
  • Investment portfolio rebalancing: Rebalancing typically involves selling appreciated assets that are above your target allocation and buying depreciated assets that have become underrepresented in the portfolio. Selling appreciated assets will trigger capital gains income. To mitigate the potential tax liability, you can donate the long-term appreciated assets to a charity instead of selling the assets. This strategy allows you to potentially eliminate the capital gains tax and claim a charitable deduction for the fair market value of the donated assets.
  • Retirement account withdrawals: If you are over age 59½ and have tax-deferred retirement accounts, you can use charitable donations and deductions, if you itemize, to help offset your tax liability on the amount you withdraw. In addition, if you are over age 70½ and have a traditional IRA, you can use QCDs, mentioned above, to satisfy all or part of your IRA Required Minimum Distribution (RMD)

If you have additional questions or would like clarification on any of the above information, please reach out to Sara-Bay Financial directly.


The information in this article is a compilation pulled from a variety of sources.  The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. To determine which investment(s) may be appropriate for you, consult your financial advisor prior to investing. Any tax information we render is general in nature.  Always consult a tax professional regarding specific tax situations.



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