Tax Planning Ideas and Tax Updates

Three Ways to Maximize Your Charitable Donations Before Year End

by Alli Thomas

Dec 9, 2021

If you’re still thinking about ways to save on taxes before December 31, you may be considering donating to your favorite causes.  

While the most common way to do this is by writing a check or donating cash, there are other options. Three of those 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 assets, such as bitcoin or restricted stock. 

This can benefit you because you won’t pay capital gains taxes on your donation.  

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. 

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 you haven’t had time to research which charities you want to help, setting up a donor-advised fund is a great way to park your money and ensure your tax deduction without having to make the actual donation until you’ve made your decision on which charities you want to receive 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 donation along with your Roth IRA conversion may help take some of the sting out of your tax bill. 

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. 

Request a no-cost, no-obligation advisor consultation today!

Get Started

Share this article

Alli Thomas

Alli Thomas has worked in the financial services industry for nearly 20 years, with a focus on retirement-related investing. She began her career as a FINRA-licensed participant-services call-center associate at Vanguard, and then moved to Principal Financial Group, where she worked closely with employers, assisting with retirement plan set-up and design, selecting appropriate plan investment offerings, and maximizing employee participation through targeted education campaigns and enrollment meetings. Alli has also worked as a qualified 401(k) administrator and registered investment advisor for several small investment firms. She now writes about all things investment- and finance-related, leveraging her extensive experience and passion for retirement planning to help investors make well-informed financial decisions.

Comments are closed.