2024 Year-End Charitable Giving Guide

The holiday season typically sparks a desire to give.  In addition to doing good for society, donations can be a beneficial part of your tax optimization strategy. Here are a few things to consider when making any end –of-year donations in 2024.

Research Charitable Organizations

With so many organizations all working on so many worthy causes, how can you make sure your donations make the most impact? Begin by looking for charities with 501(c)(3) status, indicating they are federally recognized as a non-profit organization eligible to receive tax deductible contributions.

There are a few websites that examine charities, so you can confidently donate, knowing where your dollars are going. The Better Business Bureau’s Wise Giving Alliance evaluates charities based on their governance, results reporting, finances, and truthful transparent communications to promote wise giving and trustworthy charity practices.

Guidestar is a database that collects information on a nonprofit’s mission, impact, legitimacy, reputation, finances, programs, transparency, and governance, offering a Seal of Transparency ranging from Bronze to Platinum to help sort for charities offering the most insight on the work they’re doing.

Other sites such as  Charity Navigator, Charity Watch, and Give Well offer unbiased, independent ratings and evaluations of charitable organizations.

Consider Itemizing Your Deductions

To deduct charitable donations, you must itemize deductions when you file your tax return. To do this, you’ll need to keep track of each donation made throughout the year to a qualifying charitable organization. If you want to deduct $250 or more, the charity must provide you with a form to document your contribution. For larger donations, the IRS may want to know a few important details such as the name of the charity, the gifted amount, and the date of your gift.

Remember, itemized deductions may only have tax benefits when they exceed the standard deduction, so be sure to check on the standard deduction amount for your tax filing status. If the tax benefits of your single year donations don’t exceed the standard deduction, you can consider bunching donations to realize the tax benefits. This would entail shifting the timing of donations such that donations you would have made in December are delayed to January, then you make the December donations at the end of the following year.  With essentially two years of donations in one tax year, this makes it more likely that itemizing deductions can work to your advantage.  This does require multi-year planning; please talk to your HCM Advisor if you have any questions.

Make Non-Cash Donations

Many charities welcome non-cash donations as well. In fact, donating an appreciated asset can be a tax-savvy move. 

For example, instead of selling a stock, triggering a taxable gain, and giving away the net proceeds, you may wish to make an in-kind gift of the actual shares of stock that you own that have increased in value.

This transfer can accomplish three things:

• You can avoid paying the tax you would normally pay upon selling the shares.
• You may be able to take a current-year tax deduction for the full fair market value of the shares.
• The charity gets the full value of the shares, not their after-tax net value.

Utilize Your Life Insurance Policy

Do you have a life insurance policy that you no longer need? If you make an irrevocable gift of that policy to a qualified charity, you can get a current-year income tax deduction. If you keep paying the policy premiums, each payment may become a deductible charitable donation - although deduction limits may apply.

If you pay premiums for at least three years after the gift, that could reduce the size of your taxable estate. The death benefit may be transferred out of your taxable estate, in any case.

You should consider determining whether you are insurable before implementing a strategy involving life insurance. Any guarantees associated with a policy are dependent on the ability of the issuing insurance company to continue making claim payments. Several factors will affect the cost and availability of life insurance, including age, health, and the type and amount of insurance purchased. Life insurance policies often have significant expenses, including mortality and other charges. If a policy is surrendered prematurely, the policyholder also may pay surrender charges and have income tax implications.

Consider a Donor Advised Fund

If you would benefit from the deduction today but want to give the money to charity in the future, even years in the future, consider a donor advised fund.  This is a great way to set money aside for charitable giving in retirement in your final years of working when you are still in high tax rates and Uncle Sam will share the cost.

Whatever your situation, getting advice from a tax or financial professional can help you give wisely as the year comes to a close. If charitable giving is an important part of your financial plan, it’s important to make sure you’re getting the most value out of each donation.