Leveraging Investments for Charitable Donations

Utilizing investment assets to fund charitable contributions allows investors to maximize their donations while simultaneously receiving a greater tax benefit. Consider implementing the following strategies prior to the end of the year to elevate your charitable giving for 2024:

Qualified Charitable Distributions(QCDs):

• A Qualified Charitable Distribution (QCD) is a direct transfer of funds from an IRA to a qualified charity. This strategy is limited to those ages 70 ½ and older with a $105,000/year distribution limit per taxpayer. QCDs are a great strategy for those who are of RMD age since they are excluded from taxable income and satisfy the RMD requirement.
• Since QCDs are excluded from income, taxpayers are not required to itemize their deductions to receive a charitable tax benefit.

Donor Advised Funds (DAFs):

• A Donor Advised Fund (DAF) is a charitable investment account. Account holders can make tax deductible contributions that appreciate over time and are subsequently distributed to charities of their choice. This potential investment appreciation gives donors the opportunity to maximize the amount of donations given on their behalf while receiving an upfront tax benefit at the time of funding.

Contribute Appreciated Investments:

• When appreciated investments are directly transferred to a qualified charity, the donor avoids paying capital gains tax that would have otherwise been due upon sale of the investment. Additionally, if the investment owner has held the asset for more than a year, they can claim an itemized charitable deduction for the full fair market value of the asset up to a limit of 30% of their adjusted gross income (AGI) in the year of the donation to public charities.
• Donating appreciated assets gives donors the ability to contribute more than they may have otherwise been able to. The charity will receive the full market value of the donated appreciated asset and will not be subject to capital gains upon sale. The charity may also choose to keep the donated assets invested, providing them with a potentially larger benefit than a cash donation of the same amount would have.

By leveraging investment accounts for charitable giving, investors can enhance both the financial and philanthropic outcomes of their donations, while potentially reducing their tax burden and creating a lasting legacy. Given the complexity of tax laws, if any of these strategies appeal to you please consult with your Rockbridge financial advisor when considering.