Maximize Your Charitable Giving: Insider Tips for Effective Philanthropy

At Extreme Investor Network, we believe that giving back is as important as investing wisely. With the holiday season in full swing and many of us looking for ways to support our favorite causes, it’s crucial to understand how to maximize the impact of your charitable donations while also reaping potential tax benefits. In this blog post, we’ll explore innovative strategies for charitable giving that can not only help the community but also enhance your financial stance.

The Power of Asset Donations: Go Beyond Cash

While donating cash to a charity is straightforward, it may not always be the most tax-efficient option. Certified Financial Planner (CFP) Michael Lofley highlights that donating appreciated stock can be one of the best strategies for charitable giving. Why? When you donate profitable stocks directly to a charity, you avoid paying capital gains taxes on the appreciation, and the charity benefits without having to pay taxes when they sell the assets.

Just imagine: If you’ve held onto a stock that has surged in value, donating it to your favorite charity can allow you to deduct its full market value from your taxable income, while also saving you from the tax burden that would have arisen from selling it. Everybody wins except for the IRS!

Understanding Charitable Deductions: Know Your Limits

When it comes to filing your taxes, it’s important to remember that you will claim either the standard deduction or your itemized deductions—whichever is greater. As of 2024, the standard deduction is set at $14,600 for single taxpayers and $29,200 for married couples filing jointly. If your itemized deductions exceed these amounts, only then can you benefit from your charitable gifts.

In recent years, the substantial increase in the standard deduction has led many taxpayers, roughly 90%, to opt for the simpler standard route rather than itemizing. This means that if your donations do not exceed these thresholds, you won’t be able to take advantage of the charitable deduction effectively.

The Tax-Efficient Option: Avoid Cash Gifts

Mitchell Kraus, another prominent CFP, emphasizes that cash gifts, while easy, are typically not the most tax-efficient form of donation. If you’ve held onto profitable investments in a brokerage account for over a year, you face long-term capital gains taxes upon selling them. Not only do these taxes range from 0% to 20% based on your income, but high earners must also contend with an additional 3.8% investment surcharge.

Instead of cash, you can choose to donate your appreciated assets—such as stocks or mutual funds—to avoid those capital gains taxes while also being able to deduct the market value of the investment (provided you’ve owned it for more than a year). For public charities, your deductible amount is capped at 30% of your adjusted gross income.

Strategic Giving: Stacking Deductions

As taxpayers increasingly find themselves limited by the higher standard deduction, many financial experts are advising strategizing your charitable giving over multiple years. CFP Paul Penke suggests “stacking deductions,” where you alternate years of higher charitable giving to surpass the annual standard deduction threshold.

One effective way to implement this is through a donor-advised fund (DAF). This investment account allows you to make a sizable contribution in one tax year, receiving a tax deduction for that amount, and then giving smaller amounts to charities over the following years. This gives you the flexibility to support your favorite causes while optimizing your tax benefits.

Join the Giving Revolution

At Extreme Investor Network, we understand that meaningful philanthropy can transform communities while also providing substantial financial advantages for you. As Giving Tuesday 2023 illustrated, millions are already embracing the spirit of giving; however, it’s essential to do so with a strategic approach that aligns with your financial goals.

Embrace asset donations, understand your tax liabilities, and consider a stacking strategy for your charitable contributions. By following these expert insights, you’ll not only make a profound difference in the lives of others but also create a more favorable financial landscape for yourself. Start your journey of impactful giving today!