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Holiday Presents with a Purpose: Charitable Giving & Strategic Gifting

Dec 17, 2024 | Charitable Giving, Legacy Planning

The holiday season is a time for reflecting on what truly matters—family, connection, and generosity. For many, it’s also the perfect moment to align their wealth strategies with personal values by giving back. Whether you’re aiming to support charitable causes or provide financial gifts to loved ones, understanding the tools and strategies available can enrich your holiday giving experience while offering significant tax benefits. This article explores best practices for individuals and families related to charitable giving and wealth, gifting, while also highlighting the unique opportunities available to business owners for giving stocks to charities and gifting stocks to loved ones.

Charitable Giving to Causes You Care About

Charitable giving is about more than supporting worthy causes—it’s a powerful tool for planning your financial future while reducing your tax liabilities. Here are some strategies to make your philanthropic efforts more impactful:

1. Use Donor-Advised Funds (DAFs)

Donor-Advised Funds are one of the simplest ways to manage your charitable giving. These accounts allow you to contribute cash, securities, or other assets and receive an immediate tax deduction. You can then recommend grants to charities over time, letting you support causes you care about without the pressure of immediate decisions.

By funding your DAF by December 31, you can secure a 2024 tax deduction while giving more thoughtfully in 2025 and beyond.

2. Take Advantage of Qualified Charitable Distributions (QCDs)

If you’re age 70½ or older, consider donating directly from your IRA using a Qualified Charitable Distribution. With a QCD, you can give up to $100,000 per year to eligible charities without it being counted as taxable income.
This strategy is especially helpful for retirees who don’t need their Required Minimum Distributions (RMDs) but want to avoid additional tax burdens.

3. Align Giving with Personal Values

The most meaningful philanthropy reflects your passions. Consider focusing on causes that resonate with your family values or involve subjects you deeply care about. Whether it’s education, healthcare, the arts, specific community development, giving purposefully can deepen connections with the organizations you support and create lasting legacies.

4. Donate Appreciated Assets

One often-overlooked option is donating appreciated assets such as stocks, bonds, or mutual funds. By giving these instead of cash, you not only avoid paying capital gains taxes on the asset’s increased value but also receive a charitable deduction for the full fair market value. The benefits extend to both you and the charity.

Strategic Financial Gifting to Loved Ones

When it comes to spreading holiday cheer, financial gifts to loved ones can go beyond being thoughtful—they can serve as savvy wealth-transfer strategies. Here’s how to gift wealth strategically and stay within IRS guidelines:

1. Leverage Annual Gift Exclusions

The IRS allows you to give up to $17,000 per recipient per year (in 2024) without incurring any gift taxes. Married couples can combine this for a total of $34,000 per recipient. This is an excellent way to transfer wealth to family members or friends while staying within IRS limits.

For example, grandparents could help fund a grandchild’s education or contribute to their first home purchase while reducing the overall size of their estate and the potential future tax burden to these grandchildren.

2. Set Up Financial Legacies

Consider using tools and legal vehicles like trusts to dictate the distribution and use of assets and set things up in a way that will create ongoing financial support for loved ones after you’re gone. There are many types of trusts, but options like a revocable living trust, can allow you to maintain control of your assets during your lifetime while outlining in detail how they should be distributed after you pass away.

For family business owners, a trust can also help ensure that wealth is passed down in a way that aligns with long-term goals and values.

3. Make Direct Financial Contributions

If you want your gifts to go further, consider funding accounts like 529 college savings plans directly because these contributions will grow tax-free and can offer significant financial advantages and sizable amounts of money for the beneficiary. All the while, offering you the satisfaction of being part of their educational success.

Using Stocks for Charitable Giving and Wealth Gifting

Stock ownership provides unique opportunities to maximize both charitable giving and wealth gifting for business owners.

1. Charitable Giving with Stock

Business owners can donate shares of stock directly to qualified charities. By doing so, you avoid capital gains taxes on the appreciated value of the stock, and you can claim an income tax deduction for the current market value of the shares.

For example, if you own stock worth $50,000 that originally cost $10,000, donating the stock could result in a $50,000 deduction while avoiding capital gains on the $40,000 increase. Charities can then sell the stock without incurring taxes.

2. Gifting Stock to Loved Ones

Gifting shares of stock to family members can be another strategic move. Transferring stock as part of your annual gift exclusion reduces the size of your taxable estate while providing a valuable asset for your loved ones. If the recipient is in a lower tax bracket, they may benefit from reduced taxes when they sell the stock.

For closely-held business owners, gifting shares in the company itself can be part of a broader succession and estate plan, allowing the next generation to become stakeholders.

3. Establishing Private Foundations or Charitable Trusts

Successful business owners may also explore creating charitable foundations or trusts funded with stock. These structures facilitate ongoing philanthropy while offering major tax advantages. Depending on how these entities are set up, they can also benefit heirs or support specific causes over a long period of time.

The “Wrap” Up on Giving & Gifting

The end of the year is an ideal time to consider how your wealth can make a difference—for your loved ones, the causes you care about, and your broader legacy. Charitable giving strategies like donor-advised funds, qualified charitable distributions, and donating appreciated stock can help maximize your financial impact while also minimizing tax burdens. Meanwhile, strategic financial gifting, including leveraging annual gift exclusions and giving stock can strengthen family bonds and create lasting benefits.

Thinking ahead and incorporating these strategies not only makes the holiday season special but also sets the stage for long-term financial success. Whether you’re an individual, family, or business owner, aligning your financial moves with your personal values is a powerful way to end the year on a meaningful note and give a gift that keeps on giving.

If you’d like tailored advice on charitable giving or gifting, our team is here to help. Reach out to us today for a personalized plan that maximizes your generosity and tax savings.

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