As the year wraps up, charitable giving takes center stage, with many people looking to support causes close to their hearts while also reaping some valuable tax benefits. As part of our Veracity Capital Knowledge Series: Beyond Taxes, here, we’ll explore different charitable giving options, from cash donations to more complex strategies like donating appreciated securities or setting up a donor-advised fund (DAF). Whether you’re looking for a straightforward approach or something more strategic, this article will help you make the most of your giving and potentially enhance your tax savings.

Common Assets You Can Gift

• • Cash Donations  Cash donations are the simplest way to contribute. If you itemize deductions, you can deduct up to 60% of your adjusted gross income (AGI) for cash donations to public charities. For those making higher donations, any amount above the AGI limit can usually be carried forward for five years. 

• • Securities (Publicly Traded Stocks) Have stocks that have appreciated in value? Donating these directly to a charity can be a tax-efficient move. Not only can you deduct the fair market value of the securities, but you also avoid paying capital gains tax on the appreciated value. For example, if you have stocks worth $100,000 with a cost basis of $20,000, donating them lets you deduct $100,000 while bypassing taxes on the $80,000 gain. This strategy is capped at 30% of your AGI. 

• • Private Company Stocks If you’re thinking about donating shares in a private company, things can get more complex. You’ll need a qualified appraisal to determine fair market value, especially for gifts over $5,000, and there may be restrictions on transferring the shares. Deductions are capped at 30% of AGI if donating to a public charity, with the option to carry forward any excess for up to five years. 

• • Physical Assets (Real Estate, Art) Donating tangible assets like real estate or artwork can also be beneficial, but it’s important to secure a qualified appraisal for items valued over $5,000. If the asset has appreciated and been held for more than a year, you can deduct the fair market value but note that the deduction is limited to 30% of AGI. 

Approaches to Charitable Gifting 

There are several ways to structure your giving based on how involved you’d like to be and the level of tax benefits you seek:  

• • Direct Gift to a Charity For those who want their gift to have an immediate impact, directly donating cash, securities or assets to a charity is the simplest route. Donors get an immediate tax deduction, up to 60% of AGI for cash and 30% for appreciated securities and avoid capital gains on appreciated assets. Remember to obtain a written acknowledgment for gifts over $250, and a qualified appraisal for non-cash assets over $5,000.  

• • Donor-Advised Fund (DAF) A DAF combines flexibility with tax efficiency, making it an excellent choice for individuals who want to spread out their giving over multiple years. You can contribute cash, securities or other assets to a DAF and receive a tax deduction immediately (up to 60% of AGI for cash). Then, you can recommend grants to charities at your own pace, allowing you to manage tax liabilities and support charities over time. 

• • Private Foundation For philanthropists seeking more control and the potential for leaving a legacy, a private foundation allows donors to oversee grant-making and manage investments directly. Foundations must distribute 5% of net assets annually and comply with IRS regulations, but they offer significant influence over charitable endeavors. However, they also require significant administrative work and are best for those ready to manage compliance, reporting, and higher costs. 

Advanced Charitable Giving Strategies 

Here are some tactics to maximize the tax efficiency of your giving: 

• • Gifting Appreciated Securities Have highly appreciated stocks? This strategy may be for you. By gifting the securities directly, you avoid capital gains taxes and take a deduction at the current market value. Here’s a quick comparison:
    • • Cash Donation – A $100,000 donation at a 37% tax rate saves $37,000 in taxes.
      • Gifting Appreciated Securities – The same $100,000 gift also saves $37,000, plus an additional $16,000 in avoided capital gains tax, totaling $53,000 in tax benefits.

• • Charitable Bunching For donors who may not itemize every year, “bunching” contributions allows you to claim a larger deduction by combining multiple years of donations into one. This approach works particularly well with Donor-Advised Funds, letting you take a larger deduction in the contribution year while spreading out grants over several years. 

• • Qualified Charitable Distributions (QCDs)  QCDs are a tax-efficient tool for donors aged 70½ or older. A QCD allows you to transfer up to $105,000 directly from an IRA to a qualified charity, satisfying required minimum distributions (RMDs) without adding to taxable income. 

Final Thoughts 

Charitable giving can be as simple or as sophisticated as you’d like. By choosing the right combination of assets and structuring your gifts wisely, you can create a meaningful impact for the causes you care about while maximizing your tax benefits. So, whether you’re interested in donating appreciated stocks, setting up a DAF or establishing a foundation, take some time to explore your options. With the right approach, you can support your favorite causes and achieve your financial goals in the most tax-effective way possible. 

If you have questions or want to learn more about how a Solo 401(k) can benefit you, feel free to email us at info@veracitycapital.com, or schedule an introductory meeting here.

Advisory services offered through Veracity Capital, LLC, a registered investment advisor. Information presented is for educational purposes only and does not intend to make an offer or solicitation for the sale or purchase of any specific securities, investments, or investment strategies. Investments involve risk and, unless otherwise stated, are not guaranteed. Be sure to first consult with a qualified financial advisor and/or tax professional before implementing any strategy discussed herein. Past performance is not indicative of future performance.