How To Optimize Year-End Charitable Contributions for Tax Purposes

As the end of the year approaches, many of us begin thinking about charitable giving. You probably hear this type of talk at year-end over and over again and may wonder why.

It’s not just because people with money are interested in supporting the causes they care about—though that’s a big part of it. It’s more about the fact that year-end is a strategic time to take advantage of potential tax benefits that can come with charitable donations.

For many people, focusing on charitable giving at the end of the year is about aligning their donations with tax strategies that can help lower their taxable income before filing taxes in the new year. By making these strategic contributions now, they are aiming to reduce their overall tax burden and maximize the impact of this type of philanthropy.

Here’s how to optimize your giving in the remainder of this year:

1. Make Donations Before December 31

Timing is crucial when it comes to year-end giving. Any charitable donation you make by December 31st can be deducted on your current year’s tax return. But if you wait until January 1st, that donation will count toward next year’s taxes.

For many high-net-worth individuals, giving at the end of the year can help manage income tax liabilities, especially if you’ve had a year with higher-than-expected income from investments, business earnings or other sources.

2. Leverage Qualified Charitable Distributions (QCDs)

For those over 70 ½ who hold traditional IRAs, Qualified Charitable Distributions (QCDs) can provide a great way to support charitable causes while also lowering your tax bill.

A QCD allows you to donate directly from your IRA to a qualified charity, up to $100,000 annually. The real benefit here? The amount you give won’t be included in your taxable income, making this an ideal strategy for retirees who need to satisfy Required Minimum Distributions (RMDs) but don’t want to increase their taxable income.

For example, if you’re required to take a $50,000 RMD but don’t need the income, donating that amount through a QCD can meet your RMD obligation without the tax burden.

3. Maximize Deductions Through Bunching

Because the standard deduction is now higher than it used to be, many people find it harder to itemize deductions, including charitable donations. One solution is to “bunch” your donations—contribute multiple years’ worth of charitable gifts into a single tax year. This allows you to itemize your deductions in that year and potentially exceed the standard deduction, creating a larger tax benefit.

At the end of the year, if you’re already close to itemizing, consider making a larger donation to push your deductions over the threshold. This strategy is particularly effective for those whose giving habits align with high-income years.

4. Donate Appreciated Assets Instead of Cash

Donating appreciated securities like stocks or mutual funds is another effective year-end strategy. If you have investments that have significantly increased in value, donating them instead of cash can save you a substantial amount in capital gains taxes. When you donate appreciated assets, you can avoid paying capital gains taxes on the appreciation and still deduct the full fair market value of the asset from your taxable income.

For instance, if you bought a stock years ago for $10,000 that’s now worth $50,000, donating the stock means you won’t pay capital gains tax on the $40,000 appreciation—and you’ll still be able to deduct the full $50,000 on your tax return.

5. Use Donor-Advised Funds (DAFs) for Flexibility

If you want to make a large charitable contribution now but aren’t sure where you want the funds to go, a Donor-Advised Fund (DAF) is a great option. With a DAF, you can make a tax-deductible contribution this year, but distribute the funds to charities over time. This gives you immediate tax benefits while allowing you the flexibility to make more thoughtful decisions about which organizations to support.

At the end of the year, if you’re looking to reduce taxable income but don’t have specific charities in mind, a DAF allows you to secure the deduction while giving yourself time to plan out your giving in future years.

6. Consider Charitable Trusts for Long-Term Giving

For those looking to incorporate charitable giving into estate planning, a Charitable Remainder Trust (CRT) or Charitable Lead Trust (CLT) can help achieve your long-term goals. These trusts can provide you with tax benefits while allowing you to continue supporting your family and charitable causes over time.

Setting up a charitable trust at year-end can have immediate tax benefits, especially if you’re dealing with a significant taxable event, such as the sale of a business or a large investment gain. By transferring assets into a CRT, for example, you can reduce your taxable income for the current year, receive a partial deduction, and provide for your favorite charities over time.

Why Year-End Giving Matters

The reason many high-net-worth individuals focus on charitable giving at the end of the year is simple: it’s an effective way to manage taxes before closing out the year’s financial picture.

After all, once December 31st passes, your opportunities to lower this year’s taxable income through charitable donations are gone. For those who’ve had an especially profitable year, year-end giving can provide meaningful tax relief while supporting the causes you care about.

As the year draws to a close, charitable strategies provide an excellent opportunity to not only give back but also optimize your tax situation. I encourage you to have a conversation with your advisor about your end-of-year giving strategies sooner rather than later. If you don’t currently have an advisor or would like a second opinion before the year wraps up, please feel free to reach out. I’m here to help you explore your options and make the most of your charitable contributions while aligning them with your overall financial goals.

Please Note: Every investor's situation is unique and you should consider your investment goals, risk tolerance and time horizon before making any investment. Prior to making an investment decision, please consult with your financial advisor about your individual situation. Donors are urged to consult their attorneys, accountants or tax advisors with respect to questions relating to the deductibility of various types of contributions to a Donor-Advised Fund for federal and state tax purposes. To learn more about the potential risks and benefits of Donor Advised Funds, please contact us. Please be aware that there may be substantial fees, charges and costs associated with establishing a charitable remainder trust.

The foregoing information has been obtained from sources considered to be reliable, but we do not guarantee that it is accurate or complete, it is not a statement of all available data necessary for making an investment decision, and it does not constitute a recommendation. Any opinions are those of Jeffrey A. Green and not necessarily those of Raymond James.