By Guest commentary Monday, November 4th, 2024

By Sarah Reznick

There is nothing like the feeling of giving during the holidays — the simple act of giving fosters a sense of connection with others and a sense of fulfillment. 

Spreading kindness has been clinically proven to have a positive impact on our mood and our self-esteem. 

So, as the year begins to wind down, the time to reflect and pass on some of our good fortune begins. 

To get the most value out of your yuletide cheer, there are several ways to give a gift that gives back. 

Here are my top four tax-deductible gift donation recommendations for you to consider this season:

1) Gift highly appreciated stocks or other assets

Appreciated stocks or other assets can be directly donated to your charity of choice.

If you own stocks for a year or more that have gone up in value — gift them.

The charity can keep the stocks or sell them, and you won’t have to pay taxes on the sale.

Plus, you can generally deduct a stock’s market value at the time of the donation from your taxable income if you itemize your deductions.

Selling a stock to liquidate the cash could work against you by triggering a long-term capital gains tax. 

It is a wiser move to donate the appreciated stock directly to the non-profit.

2) Set up charitable trusts

Charitable trusts can help you manage valuable assets in a way that reduces taxes and sometimes lets you divide those assets between charities and your loved ones. 

The type of trust you choose depends on when you want to give the gifts and how much flexibility you need.

• Charitable Lead Trust: In this trust, a charity receives income from the assets for a set period. After that time, the remaining assets go to other people you choose, like your family members.

• Charitable Remainder Trust: This trust works the opposite way. You (or someone you choose) receive regular income payments from the trust, and after a set time, whatever is left goes to the charity.

Both types of trusts have specific rules and are usually set up with the help of a professional. 

An alternative option is a donor-advised fund. 

This lets you make a large donation upfront, which can reduce your taxes right away, and then recommend which charities receive the money over time. 

It’s a flexible way to give. 

It’s a good idea to talk to your lawyer or tax advisor to figure out which option fits your situation best.

3) Give employer-matched donations

Today many companies offer employees a matching charitable gift program. 

This is where an employer matches the charitable contributions made by their staff.

Your employer may offer the convenience of making contributions through payroll deductions, allowing you to give systematically with each paycheck. 

In addition, your employer may match a certain donation amount, which can double the impact of your gift. 

If you have access to these or other workplace giving programs, check to see if the charities you care about are eligible to receive this type of donation.

4) Make IRA donations

This option recommends you use the Qualified Charitable Distribution rule. 

The rule allows individuals aged 70 ½ or older to donate directly from their traditional IRA to a qualified charity without having to include the distribution as taxable income. 

If you are in this age bracket you may be required to take yearly withdrawals (called distributions) that you don’t need for your living expenses. 

These withdrawals can lead to a bigger tax bill. By using the QCD rule, you can send up to $105,000 in 2024 directly from your IRA to a charity, avoiding having to claim the money as income — and therefore avoiding the tax.

This is a great way to support causes you care about while reducing your tax burden. 

As you consider these charitable giving recommendations along with other gifting strategies, consult with your financial advisor and tax advisor. 

These professionals can help you evaluate the choices to ensure the gifts you make are most effective for your goals and consistent with your overall financial plan.  

Sarah Reznick is a financial advisor with Sherfina Advisors, a financial advisory practice of Ameriprise Financial Services in Newbury Park.