In 2024, the stock market has witnessed remarkable growth, providing an opportune moment for investors to reflect on their financial achievements and consider giving back to their communities. As we approach Giving Tuesday, which follows the consumer frenzy of Cyber Monday, there’s a significant opportunity for philanthropy. However, this year, charitable giving strategies are evolving, and a thoughtful approach can maximize both personal and philanthropic benefits in a way that cash donations may not.
The Rise of Alternative Assets in Charitable Contributions
With the S&P 500 experiencing an impressive ascent of over 26% in 2024, investors are beginning to rethink their donation strategies. Historically, cash has been the gold standard for charitable giving; however, the increasing popularity of donating appreciated assets such as stocks, mutual funds, and cryptocurrencies suggests that a shift is underway. According to Brandon O’Neill, a charitable planning consultant with Fidelity Charitable, leveraging appreciated assets can yield significant financial advantages, including tax deductions and the avoidance of capital gains taxes.
In 2023, non-cash donations accounted for an impressive 63% of contributions to Fidelity Charitable, highlighting the growing trend among investors to opt for assets that have appreciated over time. Cryptocurrency also played a notable role, with donations collectively reaching $688 million as of mid-November 2024. This shift towards assets with a high appreciation potential not only serves the charitable cause but also fosters greater financial health for the donor.
The nuances of tax deductions can be complex, particularly for investors who itemize their tax returns. In 2024, individuals can take advantage of deductions if their itemized amount exceeds the standard deduction limits—$14,600 for single filers and $29,200 for those married and filing jointly. The most beneficial strategy involves donating assets that have been held for over a year, as the donor can claim a deduction based on the asset’s fair market value at the time of donation instead of its original purchase price.
Miklos Ringbauer, a certified public accountant, points out that donors can significantly enhance their tax situation by identifying assets with low cost bases and high market value. The financial benefits of this approach are two-fold: not only do donors maximize their tax deductions, but they also effectively contribute to their favorite charities.
Beyond the tax implications, donating appreciated assets serves as an excellent strategy for asset management. Charitable donations can help investors rebalance their portfolios by reducing heavy concentrations in specific stocks that have surged in value. Notable examples from S&P 500 stocks include Palantir Technologies and Vistra Corp., both of which have increased by over 300% this year. Christine Benz, a director at Morningstar, emphasizes that contributing employer stock can mitigate risk for employees whose compensation packages heavily involve company shares.
Moreover, donors can diversify their holdings while remaining philanthropic. The benefits of reducing risk in a portfolio through charitable donations make this approach highly strategic in times of market volatility.
In light of the substantial standard deductions, individuals might find it advantageous to “bunch” their charitable contributions. This method involves consolidating multiple years’ worth of gifts into a single year, thereby maximizing the itemized deduction benefits. Transferring appreciated assets into a donor-advised fund allows investors not only to streamline their donations but also to influence which charities receive the funds over time.
For elderly investors, particularly those above 70½ years old, utilizing a Qualified Charitable Distribution (QCD) from an Individual Retirement Account (IRA) could present the most tax-efficient avenue for charitable giving. QCDs enable individuals to make direct donations from their IRAs to qualifying charities, thereby circumventing income taxes on the distribution amount. As of 2024, eligible IRA owners can exclude up to $105,000 in QCDs from their taxable income. This strategic use of QCDs can also reduce the future Required Minimum Distributions (RMDs) that will need to be drawn, offering a robust financial strategy for retirement planning.
As we approach Giving Tuesday and the end of the financial year, investors have a pivotal opportunity to use their financial successes to contribute positively to society. By evaluating not just cash donations but a variety of asset types, donors can maximize their tax benefits and further appreciate the impact of their generosity. The blend of financial prudence with charitable intent reflects a growing trend: savvy investors not only elevate their communities but also fortify their own financial standing. By embracing these creative strategies, everyone can participate in a cycle of wealth-sharing that benefits both the giver and the receiver.