The holiday season is upon us, and it’s a time when many choose to give back—whether through donations to favorite charities or gifts to loved ones. Here’s an updated overview of the key tax considerations for these generous acts.
Donating to Charity
To claim a charitable donation tax deduction in 2024, you must itemize deductions on your tax return. If you’re considering donating investments, here are two important strategies to maximize tax benefits:
- For Investments with Losses
Avoid gifting investments currently worth less than what you paid for them in taxable brokerage accounts. Instead:- Sell the shares and claim the capital loss on your tax return.
- Donate the cash proceeds to charity. If you itemize, you can claim a full tax deduction for the donation.
- For Appreciated Investments
For investments that have gained value, consider donating them directly to charity.- If you itemize, you can claim a deduction equal to the current market value of the securities if they’ve been held for more than a year.
- This approach avoids capital gains taxes on the appreciation, and the charity, as a tax-exempt entity, can sell the shares without incurring federal income tax.
Charitable Donations from Your IRA
If you’re 70½ or older, you can make tax-advantaged donations directly from your IRA to qualified charities. These qualified charitable distributions (QCDs) allow you to:
- Donate up to $105,000 annually. Married couples, if both meet qualifications and have separate IRAs, can donate up to $210,000 combined.
- Exclude the distribution from taxable income, though you won’t receive a separate itemized deduction.
This strategy provides an effective way to satisfy your required minimum distribution (RMD) obligation while supporting causes you care about. To leverage QCDs for 2024, work with your IRA trustee to ensure funds are distributed to qualifying charities before year-end.
Giving to Loved Ones
Tax-efficient strategies also apply to gifting investments to family members or loved ones:
- For Investments with Losses
Sell investments that are currently worth less than what you paid, claim the capital loss on your tax return, and then gift the cash proceeds. - For Appreciated Investments
Transfer appreciated stocks directly to loved ones, especially if they are in a lower tax bracket. They’ll incur a lower tax rate (or none) on the gains when they sell.
For 2024, the annual gift tax exclusion allows you to gift up to $18,000 per recipient. Married couples making joint gifts can double this amount, giving up to $36,000 per recipient without gift tax implications.
Plan for Tax-Smart Giving
Whether your generosity is directed toward charities, loved ones, or both, understanding the tax rules can help you maximize your impact. Contact us with any questions about year-end giving strategies and their tax implications.
