How to Leverage Charitable Giving Strategies during the Holidays

The holiday season is a time of generosity and gratitude — plus it comes just before the end of the fiscal year and tax season — making it a prime opportunity for high-net-worth individuals and families to incorporate charitable giving into their financial strategies. With the right planning, you can support causes close to your heart while making your contributions more tax-efficient, making giving a win-win scenario. 

In this article, we’ll explore various charitable giving strategies to help you maximize your impact this holiday season:

1. Donor-advised funds
2. Charitable trusts
3. Gifting appreciated securities
4. Qualified charitable donations
5. Bunching charitable contributions

If you’re looking to make the most of your charitable donations, working with a wealth advisor from Avidian Wealth Solutions can help you incorporate tax-efficient strategies and align your generosity with your broader financial goals.

Why the holidays are ideal for charitable giving strategies

The holidays are an ideal time to reassess your strategic philanthropy goals. Many charitable organizations ramp up their efforts to raise funds, and often offer matching programs to allow donors to deepen their impact. However, beyond the feel-good factor, the holiday period also marks the end of the tax year, making it the last opportunity to take advantage of various tax benefits associated with charitable contributions.

From a financial planning perspective, the holiday season presents a unique opportunity to implement charitable giving strategies that can help reduce your taxable income, increase deductions, and offer long-term benefits for your family and the causes you care about.

Charitable giving strategies and tax benefits

The IRS provides several tax-efficient ways to make charitable donations. Depending on the type of donation and the recipient organization, you can deduct contributions up to a certain percentage of your adjusted gross income (AGI).

The current rules allow you to deduct cash contributions up to 60% of your AGI, while donations of appreciated assets, such as stocks or real estate, can be deducted up to 30%. With these limits in mind, it’s crucial to strategically plan how and when to give so that your contributions are timed to maximize their tax benefits.

1. Donor-advised funds (DAFs)

One of the most flexible and tax-efficient tools for charitable giving is a donor-advised fund (DAF). A DAF allows you to make a charitable contribution and receive an immediate tax deduction while giving you the flexibility to recommend grants to charities over time.

Here’s how it works:

• Immediate tax benefits: Once you contribute to a DAF, you are eligible for an immediate tax deduction, even if the funds are distributed to charities in the future.
• Appreciated assets: By donating appreciated assets, such as stocks or real estate, you avoid paying capital gains taxes while still receiving a deduction for the fair market value of the asset.
• Philanthropic flexibility: DAFs allow you to spread out your charitable giving over several years, enabling you to plan your donations more strategically without being bound by the holiday rush.

For high-net-worth individuals, donor-advised funds offer the flexibility to continue giving thoughtfully beyond the holiday season, making them a powerful tool for long-term philanthropic goals. To explore how a DAF fits into your financial strategy, consult with an Avidian wealth advisor.

Learn more: What is the difference between DAF and family foundation?

2. Charitable trusts

Charitable trusts are another tax-efficient strategy for making significant gifts. These can be particularly effective for individuals who are looking to make large, sustained contributions while receiving financial benefits. Two common types of charitable trusts include:

• Charitable remainder trust (CRT): A CRT allows you to transfer assets into a trust, which then provides income to you or other beneficiaries for a specified period. After that period, the remaining assets in the trust are distributed to a charitable organization. This structure can help you minimize estate taxes, avoid capital gains taxes on appreciated assets, and create a steady income stream for you or your family.
• Charitable lead trust (CLT): A CLT operates in reverse, with the trust providing income to a charity for a specified period, after which the remaining assets are returned to you or your beneficiaries. This strategy can reduce the taxable value of assets passed to heirs and is particularly effective in a low-interest-rate environment.

Both charitable remainder and lead trusts allow high-net-worth families to balance their philanthropic goals with estate and tax planning strategies, creating opportunities for significant tax savings.

3. Gifting appreciated securities

Gifting appreciated securities, such as stocks or mutual funds, is one of the most tax-efficient ways to give during the holiday season. By donating appreciated securities directly to a charity, you can avoid capital gains taxes and deduct the fair market value of the securities, up to 30% of your AGI.

Here’s why this is effective:

• Capital gains tax savings: When you donate appreciated securities instead of selling them, you avoid paying capital gains taxes, which can be significant for high-net-worth investors.
• Double tax benefit: Not only do you avoid capital gains taxes, but you also receive a charitable deduction for the fair market value of the securities.

For example, if you purchased stock for $100,000 that has appreciated to $200,000, donating the stock allows you to avoid paying capital gains taxes on the $100,000 gain while still receiving a deduction for the full $200,000.

If you’re holding significant appreciated assets, gifting them during the holiday season can provide both substantial tax savings and an impactful way to support your chosen causes. An Avidian wealth advisor can help identify which securities make the most sense to donate and how to time your donations for maximum impact.

4. Qualified charitable distributions (QCDs)

What is a qualified charitable distribution? For individuals over 70½ years old, a qualified charitable distribution (QCD) is another powerful tool for leveraging charitable giving during the holidays. A QCD allows you to donate up to $100,000 per year directly from your IRA to a charity, satisfying your required minimum distribution (RMD) without the distribution being counted as taxable income.

Here’s how a QCD works:

• RMD satisfaction: The QCD counts toward your RMD for the year, meaning that you can fulfill your RMD obligation without increasing your taxable income.
• Tax-free distribution: Because the funds go directly to a charity, the distribution is excluded from your taxable income, making it a highly tax-efficient way to give.

For retirees with significant assets in their IRAs, QCDs offer an excellent opportunity to meet RMD requirements while supporting charitable causes. Be sure to consult with your financial advisor before making any QCDs, as the funds must go directly to the charity to qualify.

5. Bunching charitable donations

Under the Tax Cuts and Jobs Act, the standard deduction increased, which has made it more difficult for taxpayers to itemize deductions, including charitable contributions. However, by “bunching” charitable donations — essentially combining several years’ worth of donations into one year — you can surpass the standard deduction and itemize your contributions for greater tax benefits.

Here’s how it works:

• Combine donations: Instead of making regular annual donations, you can combine multiple years’ worth of contributions into a single year, allowing you to itemize and take advantage of a larger charitable deduction.
• Alternate years: In years when you don’t bunch your contributions, you can take the standard deduction.

Bunching charitable donations can be an effective way for high-net-worth individuals to maximize their tax savings, particularly for those whose charitable giving may not exceed the standard deduction every year.

Leverage your charitable giving strategies with help from Avidian.

Whether you’re looking to support your favorite causes through charitable giving strategies like donor-advised funds, charitable trusts, appreciated securities, or qualified charitable distributions, the key is to plan ahead and make your generosity work for both your philanthropic and financial goals.

At Avidian Wealth Solutions, we understand the complexities of charitable giving and how it fits into broader wealth management strategies. If you want to make the most of your holiday giving this year, schedule a conversation with one of our wealth advisors to explore options tailored to your specific financial situation. With offices in Houston, Austin, Sugar Land, and The Woodlands, we can help you maximize the impact of your charitable donations while building a strong financial future.

More Helpful Articles by Avidian: 

• Key Considerations for Investing in the Real Estate Sector
• Preparing Your Children for Generational Wealth Transfer
• The Pros and Cons of Owning a Private Jet
• Investing in Texas Ranch Properties: a Long-Term Strategy for High-Net-Worth Families
• Maximizing the QSBS Exemption

---

Please read important disclosures here