Maximize Your Holiday Tax Savings: Smart Strategies You Need to Know!

The investment landscape has been like a generous holiday feast this year, and what better way to spread the joy than by sharing your good fortune with those in need? Just after the frenzy of Cyber Monday comes Giving Tuesday, a perfect opportunity to reflect on the spirit of giving and to support your favorite causes. With the S&P 500 soaring over 26% in 2024, giving cash might not be the smartest route. Instead, think outside the box—donate appreciated assets like stocks, mutual funds, or even cryptocurrency to make a real impact. “Cash used to be the go-to choice for donations,” explains a charitable planning expert. “But gifting an appreciated asset not only nets you a tax deduction, it also sidesteps pesky capital gains taxes.” Why pay taxes on the profits when you can give your charity the full value? In fact, non-cash contributions, including stocks, represented a whopping 63% of donations last year. And get this: cryptocurrency donations have already hit $688 million this year alone!

For those itemizing deductions—meaning your total deductions surpass the standard deduction of $14,600 for single filers or $29,200 for married couples—there’s a golden opportunity to maximize your tax benefits. If you’ve held an asset for at least a year, simply instruct your broker to donate it and calculate your tax write-off based on the asset’s fair market value at the time of the gift. This strategy is especially effective if you have low-cost assets that have skyrocketed in value. “When you donate, you get the fair market value, not just what you paid, amplifying your tax benefits,” a CPA shares.

Looking for assets that have seen significant growth? Consider stocks from the S&P 500 that have experienced a meteoric rise this year, like Palantir Technologies and Vistra Corp, both up more than 300%. But donating isn’t just about the tax advantages; it’s also a smart way to balance your portfolio. If you’ve accumulated too much of one stock, donating can help you diversify. “Employer stock is often a prime candidate for donations,” advises a personal finance expert. “Reducing concentration risk is crucial, especially after such a strong performance this year.”

Now, let’s talk strategy. With the standard deduction being so high, it may make more sense to bunch several years of donations into one. By transferring appreciated assets to a donor-advised fund, you simplify your giving and can make grants to multiple organizations over time. “Using a bunching strategy allows you to itemize in some years while taking the standard deduction in others,” the expert advises.

For those over 70 1/2, consider a qualified charitable distribution (QCD) from your individual retirement account (IRA) if you don’t need the cash. While regular IRA withdrawals are taxed, QCDs are not—provided they go directly to a qualifying charity. In 2024, eligible IRA owners can exclude up to $105,000 in QCDs from their taxable income. Plus, with the age for starting required minimum distributions now at 73, initiating QCDs at 70 1/2 can reduce your IRA balance and, consequently, lower future RMDs.

In essence, this Giving Tuesday, let’s turn our financial gains into meaningful gifts. Your smart giving not only benefits others but also enhances your financial well-being. So, why not make a difference today?