How to Make a Big Impact Locally with Year-End Charitable Giving

December 5, 2023

As seen in The Savannah Morning News on 11/21/2023

American billionaire, investor and philanthropist Warren Buffet once observed: “If you’re in the luckiest one percent of humanity, you owe it to the rest of humanity to think about the other 99%.”

If you’re fortunate to be in a position to donate to local nonprofit organizations and to support causes you value in 2023, it’s not too late to make charitable contributions that can help create a stronger community right here in Savannah.

It’s important to note that not all taxpayers are eligible to take an itemized tax deduction for charitable donations and that donors can only claim itemized charitable donation tax deductions when their donations exceed the standard income tax deduction, which is currently $13,850 for individuals and $27,700 for married taxpayers filing jointly. If you wish to explore deducting higher amounts, you will need to itemize your deductions.

Regardless of the amount that you’d like to donate to your favorite 501(c)(3) organizations in 2023, you will want to do so before the end of the year in order to qualify for the income tax deduction for this year. As Thanksgiving approaches and 2023 winds down, here are a few ways high net-worth investors can make strategic charitable gifts before the end of the year:

Gift appreciated stock to your favorite charity.

Gifting low-basis stock instead of cash can be a strategic option to support a 501(c)(3) charitable organization. Donors can avoid paying capital gains taxes while taking a charitable donation deduction. Investors with appreciated, publicly traded securities such as stocks, bonds, exchange traded funds and mutual funds can directly donate those securities to charity, avoiding the capital gains tax that would otherwise be due when the shares are sold. For example, if you were to sell appreciated stock held for more than one year to make a cash donation to charity, you would owe capital gains on the sale. However, if you donate the shares directly, you receive credit for the full market value of the stock and avoid paying capital gains because you never actually sold those shares. This strategy can result in more funds going to your charity as well as a larger tax deduction for 2023.

Make a qualified charitable donation from your IRA.

Gifting funds directly from an Individual Retirement Arrangement (IRA) is gaining popularity among retired individuals who are required by law to take annual Required Minimum Distributions (RMD) if they are 73 or older this year. This strategy, often referred to as a Charitable IRA Rollover or an IRA Qualified Charitable Distribution (QCD), enables you to donate up to $100,000 tax-free when the funds are paid directly from your IRA to a qualified charity. You’ll avoid income tax on the gifted funds, regardless of whether you itemize or claim the standard deduction. You can begin making QCDs at age 70 1⁄2, so you can take advantage of this option prior to the year in which you are required to begin taking RMDs.

Set up a one-time Legacy IRA Qualified Charitable Distribution.

A new option for 2023 for donors age 70 1⁄2 or older is known as the Legacy IRA Qualified Charitable Distribution, which allows for up to $50,000 in charitable donations in a single tax year only once during the donor’s lifetime. Included as part of the Secure 2.0 Act, the Legacy IRA option was signed into law last December and went into effect in 2023. Funds can be used to create a charitable gift annuity or a charitable remainder trust and can be distributed among multiple charities. The total amount distributed applies toward the federally mandated $100,000 annual limit for qualified charitable distributions.

Consider “bunching” charitable donations.

Another strategy is to group charitable donations and other itemized expenses that would normally be made annually over several years into a single year in order to exceed the standard deduction amount in the “bunch” years. That way, you can claim the standard deduction in the non-bunch years and combine multiple years of annual charitable contributions into a single year. For example, you can make your 2024 charitable contribution in 2023 in order to itemize the deduction. Then, in 2024 and in subsequent years, you can claim the standard deduction.

By any measure, 2023 has been a challenging year due to inflation, rising interest rates and other economic factors that have made it more difficult for many Savannahians to make ends meet and to provide for their families. Donations to local charitable organizations are especially important this year and during the holiday season. Remember that your financial advisor will need time to process your request, so please be sure to initiate any year-end charitable donations as soon as possible.

The holidays are always a special time to celebrate with family and friends and to be thankful for our many blessings. If you’re interested in giving back to help others in need, now is an ideal time to take steps to support local qualified 501(c)(3) organizations.