The season of giving is just around the corner. Before you start signing checks, it’s a good idea to make sure your giving strategy is positioned to maximize your generosity while aligning with your overall financial plan and values.
Whether you’re a business owner, retiree, or pre-retiree, year-end charitable giving provides valuable opportunities to give back while making strategic, tax-advantaged financial decisions. I encourage you to look before you leap–or, in this case, give–so you can avoid these common pitfalls.
Mistake #1: Not Tracking Your Giving
Establishing a multi-generational legacy of generosity is a wonderful way to bring a sense of unity to your family while doing good. However, without the proper structure in place, keeping track of who has given how much to which organization can easily become confusing.
A simple solution is to set up a donor-advised fund (DAF). These funds significantly minimize the administrative tasks associated with charitable giving while maintaining flexibility and tax advantages. Multiple family members can contribute to the fund or be named as advisors, giving them the ability to allocate funds from the account. Once cash or assets are added to the fund, you can invest them as you wish, allowing them to grow tax-free, potentially increasing your giving. With tax deductions of up to 60% of adjusted gross income for cash contributions and up to 30% for appreciated securities, donor-advised funds make it easy for the whole family to leave a legacy of generosity, track collective giving, and enjoy tax benefits. If you’re not sure whether or not a DAF is right for you, learn more here.
Mistake #2: Falling for a Scam
It’s estimated that around 30% of all charitable giving occurs in December alone. As holiday giving ramps up, unfortunately, so do the scams.
Remember: if a friend likes or shares a charity or giving opportunity online, don’t assume it’s legitimate. Verify that they haven’t been hacked before joining the cause. Don’t click on links or attachments you receive via text, email, or social media posts; instead, visit the organization’s website and give through their online portal. You can also verify whether or not an organization offers tax-deductible contributions by using the IRS’s tax-exempt organization search tool.
Mistake #3: Making a Cash Donation
Writing a check to a charitable organization you’re passionate about is good; gifting long-term* appreciated securities is even better, both for you and the cause you’re supporting.
Selling shares in order to give to a nonprofit provides you with a tax write-off, but it doesn’t protect you from capital gains taxes if those shares performed well before you sold them. By gifting the long-term shares directly, you get the same tax deductions without owing on the gains. The charitable organization can sell the shares without owing capital gains taxes, saving money for both of you and maximizing your gift in the long run. While not all charities are equipped to receive securities, you can still use this tax-advantaged giving strategy by setting up a donor-advised fund.
*As of 2024 tax rules, you need to hold the stock for at least one year and one day for them to be considered “long-term.” Check with your financial planner or tax advisor to ensure you can benefit from this strategy.
Mistake #4: Waiting Until the Last Minute
You likely know that the deadline for tax-deductible donations is December 31st, but if you’re using a DAF, it’s important to consider processing delays. Depending on how you contribute, funds may take up to 6 weeks to process, but they must be received by December 31st in order to count toward your 2024 deductions. Have a plan for how and what you want to give, and make sure your contributions are cleared well before the ball drops.
Mistake #5: Not Lowering Tax Obligations in Retirement as Much as You Could
Retirees 73 and older who own an IRA have to take required minimum distributions (RMDs) from their retirement savings or risk penalties from the IRS. Since distributions are considered taxable income, RMDs have the potential to bump you into a higher tax bracket.
Fortunately, there’s a way to satisfy the IRS, reduce your tax liability, and give generously. A qualified charitable distribution (QCD), also called a charitable IRA rollover, allows you to make a gift of up to $105,000 directly from your IRA to one or more qualifying charities, which can satisfy all or part of your RMDs for the year. The funds move directly from your IRA to the charity, so you can meet the IRS’s requirements without incurring additional taxes.
Mistake #6: Forgetting About Stock Concentrations
CEOs and high-level executives are especially prone to lopsided portfolios, due to executive benefit packages that typically include company stock options. Balancing your portfolio is a key component of managing risk, and charitable giving strategies provide the perfect opportunity to do so. Using a DAF or gifting shares directly allows you to lower your tax liability while using the funds you had earmarked for charity to diversify your portfolio.
Go Above and Beyond Generosity
There’s nothing more fulfilling than being able to invest in a cause that you find meaningful, but giving strategically allows the ripple effects of your generosity to reach even further. By incorporating a tax-advantaged approach that works with you and your family’s whole financial strategy, you can give less to the IRS and more to the things that matter to you.
One of the most rewarding things I get to do at Swad Wealth Management is to hear about your dreams and plans for the future and work with you to make them a reality. You can get more tips for creating a charitable giving strategy with my downloadable, or book a free call with me. Let’s start planning your dream retirement together.
Meet the Contributor
Zack Swad, financial planner located in Santa Rosa, CA
Zack Swad is a fee-only financial planner located in Santa Rosa, CA serving clients locally and across the country (virtually).
He specializes in financial planning and retirement planning for people age 50+. As a fee-only, fiduciary, and independent financial advisor, Zack Swad is never paid a commission of any kind, and has a legal obligation to provide unbiased and trustworthy financial advice. He has been in the finance industry for over 11 years. He previously worked for a Fortune 500 Financial Services company, managing a practice of $800 million for 300 clients. Zack then went on to build his own firm, Swad Wealth Management, LLC so he could make a deeper impact in his client’s lives. In his free time, Zack enjoys spending time with his wife Elise, playing board games, piano, and singing.
Zack Swad’s Contact Information:
Email – zack@swadwealth.com
Want to talk to Zack? Schedule a Call
Disclosures:
This commentary on this website reflects the personal opinions, viewpoints and analyses of the Swad Wealth Management, LLC employees providing such comments, and should not be regarded as a description of advisory services provided by Swad Wealth Management, LLC or performance returns of any Swad Wealth Management, LLC client. The views reflected in the commentary are subject to change at any time without notice. Nothing in this article constitutes investment advice, performance data or any recommendation that any particular security, portfolio of securities, transaction or investment strategy is suitable for any specific person. Any mention of a particular security and related performance data is not a recommendation to buy or sell that security. Swad Wealth Management, LLC manages its clients’ accounts using a variety of investment techniques and strategies, which are not necessarily discussed in the commentary. Investments in securities involve the risk of loss. Past performance is no guarantee of future results.
