How to Maximize Charitable Donations Before Year End

If you’re looking to reduce your tax bill for the year, you may be considering making charitable contributions to your favorite causes. If you itemize deductions instead of taking the standard deduction, tax deductible charitable giving is a great strategy for reducing your tax bill.

While the most common approach for charitable giving is to write a check or donate cash, there are other options to support organizations you care about while lowering your tax liability. Three ways to maximize charitable donations include:

1. Donate appreciated stocks

Most charities will accept stock donations of most publicly traded companies in lieu of cash. Some will even take other types of appreciated assets, such as bitcoin or restricted stock.

This can be advantageous since you wouldn’t have to pay capital gains taxes on your donation (versus selling the stock and then donating the proceeds).

You can also claim the fair market value of the stock if you itemize deductions on your federal tax return—up to 30% of your adjusted gross income.

Donating appreciated stock to charity also allows you to reduce a concentrated position (such as shares of employer stock) without paying capital gains tax.

2. Set up a donor-advised fund (DAF)

Offered by public charities, usually community foundations or financial services companies, a donor-advised fund (DAF) enables you to make your contribution to the charity, take a charitable income tax deduction, and recommend grants from the fund in the future.

As a donor, you can make contributions whenever you want. You may also recommend grants to your pet causes as you see fit — provided those charities are eligible under IRS 501(c)(3).

If you’re looking to get a tax break this year but haven’t had time to research which charities you want to help, setting up a donor-advised fund is a great way to lock in tax savings and put money away for charitable giving without having to make a snap decision as to where you’ll donate the money.

A donor-advised fund may also help offset your tax bill in years during which you’ve made unusually high earnings or received a larger-than-normal year-end bonus.

3. Make a charitable donation along with a Roth IRA conversion

Thinking about converting some of the assets in your traditional IRA to a Roth IRA but balking at the thought of the taxes you’ll owe on the transaction?

Making an itemized charitable contribution along with your Roth IRA conversion may help take some of the sting out of your tax bill.

Looking for more ways to reduce your taxable income?

These are just a few of the many charitable giving options that may help reduce your tax bill.  

While some may seem straightforward, you may need help deciding your next steps. For example, if you’re thinking about giving appreciated stock to your favorite charity, do you know which holdings would be best to donate?  

If you’d like to get a second opinion on your plan, or if you just want to walk through the best overall charitable giving strategy for you, click here to schedule a free, no-obligation conversation with one of our advisors.