In 2024, investors have experienced a robust upswing in the market, with the S&P 500 enjoying a remarkable increase of over 26%. This financial windfall comes at a time when the spirit of generosity is also encouraged, especially as Giving Tuesday follows closely behind Cyber Monday. This day serves as an excellent opportunity for individuals to reflect on how they can contribute to their favorite charitable organizations. As the stock market flourishes, understanding the most efficient ways to give can maximize both the impact on the receiving charities and the personal financial benefits for the donors.
In previous years, cash donations were often regarded as the default choice for charitable contributions. However, this trend has shifted notably in 2024. Investing in appreciating assets such as stocks, mutual funds, and even cryptocurrencies offers more substantial tax benefits for those wishing to give. According to Brandon O’Neill, a charitable planning consultant at Fidelity Charitable, donating appreciated assets allows the donor to avoid capital gains taxes. As investors are typically subject to these taxes when liquidating assets, gifting stocks or other appreciated properties provides an opportunity to bypass this liability while securing a tax deduction based on the asset’s fair market value.
Data from Fidelity Charitable indicates a remarkable change in donation behavior, where non-cash assets constituted 63% of contributions in 2023. Furthermore, cryptocurrency donations reached a substantial $688 million just before mid-November 2024. This shift signifies a growing awareness among donors regarding the strategic advantages of donating appreciated assets versus cash.
One of the main incentives for wealthy individuals to donate appreciated assets lies in the tax deductions available for itemized deductions. For taxpayers whose itemized deductions exceed the standard deduction threshold—$14,600 for single filers and $29,200 for married couples in 2024—there’s an opportunity to write off their charitable contributions. A pivotal point to note is the stipulation that assets held for more than a year may be gifted, and the tax deduction is calculated based on the fair market value at the time of donation, rather than the original purchase price or cost basis. This gives donors the ability to create a more significant impact on their tax returns.
Miklos Ringbauer, a certified public accountant, highlights how donors can leverage this strategy to maximize their philanthropic impact. Gifting assets with a low cost basis but high appreciation allows the donor to optimize their tax advantages while supporting the causes they are passionate about.
In addition to the tax benefits, donating appreciated assets can serve as a strategic method for managing one’s investment portfolio. High-flying stocks—like Palantir Technologies and Vistra Corp., both surging over 300% in 2024—can lead to imbalanced portfolios. Charitable giving offers a unique avenue for investors to offload the concentrated risks presented by such assets. Christine Benz, director of personal finance at Morningstar, suggests that utilizing charitable contributions to reduce exposure to volatilities with employer stock can alleviate portfolio risk while simultaneously making a significant contribution to society.
This synergistic approach of portfolio trimming and charitable giving allows investors not only to maintain a diversified investment strategy but also to enhance the societal impact of their financial success.
Given the substantial standard deduction in place, strategic donors may find it beneficial to “bunch” donations. This involves consolidating several years’ worth of charitable contributions into a single year. By directing appreciated assets to a donor-advised fund, one can streamline the charitable giving process and still maintain flexibility to support multiple organizations over time. Benz suggests that this method empowers investors to utilize their itemized deductions selectively, optimizing their annual tax benefits.
For older investors, particularly those over 70½ years old, a qualified charitable distribution (QCD) presents another advantageous route for charitable giving. QCDs can provide a straightforward way to transfer funds from an individual retirement account (IRA) directly to qualified charities without incurring tax liabilities on the distributed amount. This can significantly assist in managing required minimum distributions (RMDs), helping to lower future income tax burdens while simultaneously meeting philanthropic goals.
With the investment landscape blooming in 2024, the intersection of financial savvy and philanthropy has never been more pertinent. By embracing strategies that focus on gifting appreciated assets, maximizing tax benefits, and creatively managing portfolios, investors can enrich both their financial well-being and their charitable endeavors. As Giving Tuesday approaches, it encourages a reflective pause—how can we weave charitable giving into our financial success stories, ensuring that both our portfolios and communities thrive together?