Year-End Charitable Giving Opportunities

By Lexington Wealth Management on December 17, 2024

Another year-end, another opportunity to reduce taxes while making a positive impact. According to a 2024-2025 report from the Lilly Family School of Philanthropy, charitable giving is expected to increase in by 4.2% by the end of 2024 and 3.9% by the end of 2025 due to individual’s stock market gains and growth in their income and net worth.¹ And with the 2017 Tax Cuts and Jobs Act slated to expire at the end of 2025, it may be worth reconsidering your approach to charitable giving over the next year to minimize tax burden and maximize tax benefits.

Here are some ideas to consider and discuss with your advisors as we approach year-end.

Gifting Appreciated Stock or Other Non-Cash Assets to Charity:

EXAMPLE— Donating Stock vs. Selling Stock to Fund a Cash Donation

**Assumes donor’s AGI exceeds $150,000 and therefore that the charitable deduction for the donation does not exceed 0.3% of the donor’s AGI. Source: Donating IPO stock. (n.d.). Schwab Brokerage. Retrieved October 23, 2024, from https://www.schwabcharitable.org/non-cash-assets/ipo-stock

If You are 70 1/2 or Older, Making a Qualified Charitable Distribution (QCD) From Your IRA:

A QCD is an otherwise taxable distribution of up to $105,000 from an IRA to a qualified charity.² This distribution counts toward your required minimum distribution (RMD) and is excluded from your taxable income, even if it exceeds your RMD. Depending on your unique situation, making a QCD may even allow you to remain in a lower tax bracket and avoid the 3.8% net investment income tax on capital gains, interest and other investment income, applicable to taxpayers above certain modified gross adjusted income thresholds (e.g., $250,000 for married couples in 2024).

It is also important to note the following:

• Using required minimum distributions (RMD), which begin at age 73, for QCDs is often advantageous.
• QCDs can not be made from employer-sponsored retirement plans such as 401(k)s and 403(b)s.
• QCDs can not be made to private foundations, supporting organizations or donor-advised funds.
• The timing of QCDs is important so as not to inadvertently generate taxable income. For example, if you were to take a $15,000 RMD early in the year and then toward year-end make a $15,000 QCD, the $15,000 QCD will not offset the RMD you made earlier in the year; the IRS would treat the first $15,000 as taxable income.
• You must inform your tax advisor when you make a QCD, as the standard 1099-R tax document provided by IRA administrators does not distinguish between the types of withdrawals made.

Bunching Charitable Gifts:

Bunching charitable gifts (combining multiple years’ donations into one year) — perhaps through a donor-advised fund, itemizing deductions the year you bunch, and taking the standard deduction in years you don’t bunch — could make sense. This is particularly the case in situations where there is a relatively small tax liability difference between taking the standard deduction and itemizing your deductions.

Example of Bunching — Married, Filing Jointly — for Illustrative Purposes Only³

Funding a Charitable Trust:

Establishing a charitable trust may help you achieve multiple goals, including balancing your charitable goals with your income needs and/or providing potential tax deductions. There are two main types of charitable trusts that you can consider with your advisors — charitable remainder trusts (CRTs) and charitable lead trusts (CLTs). Both types of trusts involve gifting assets to a trust after which regular payments from the trust are either made to a noncharitable beneficiary (CRT) or charitable beneficiary (CLT) until the end of the trust’s term, at which point remaining assets are paid to a charitable beneficiary (CRT) or noncharitable beneficiary (CLT). Both vehicles can benefit individuals and families who have significant charitable intentions. They can be beneficial for those looking to preserve the value of highly appreciated assets while also receiving tax deductions and exemptions.

A Year-End Plan for You:

The above techniques, and other tax planning strategies, require careful, skilled consideration. Please reach out to us, and we can coordinate a custom, year-end plan with your accountant, tax attorney and any other advisors.

Sources:

¹ School of Philanthropy, Indiana University Lilly Family. (2024, March 1). The Philanthropy Outlook 2024-2025 Report. https:// scholarworks.indianapolis.iu.edu/items/499ae1f5-c885-4aa3-aa49-1f27534dd096

² What is a qualified charitable distribution? (n.d.). Fidelity Charitable. Retrieved October 28, 2024, from https:// www.fidelitycharitable.org/guidance/philanthropy/qualified-charitable-distribution.html

³ IRS provides tax inflation adjustments for tax year 2024 | Internal Revenue Service. (n.d.). https://www.irs.gov/newsroom/irs- provides-tax-inflation-adjustments-for-tax-year-2024

Disclosures

Hightower Advisors, LLC is an SEC registered investment advisor. Securities are offered through Hightower Securities, LLC, Member FINRA/SIPC. All information referenced herein is from sources believed to be reliable. Hightower Advisors, LLC has not independently verified the accuracy or completeness of the information contained in this document. Hightower Advisors, LLC or any of its affiliates make no representations or warranties, express or implied, as to the accuracy or completeness of the information or for statements or errors or omissions, or results obtained from the use of this information. Hightower Advisors, LLC or any of its affiliates assume no liability for any action made or taken in reliance on or relating in any way to the information. This document and the materials contained herein were created for informational purposes only; the opinions expressed are solely those of the author(s), and do not represent those of Hightower Advisors, LLC or any of its affiliates. Hightower Advisors, LLC or any of its affiliates do not provide tax or legal advice. This material was not intended or written to be used or presented to any entity as tax or legal advice. Clients are urged to consult their tax and/or legal advisor for related questions.