Ramp up tax savings for the holiday season with these strategies

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Ramp up tax savings for the holiday season with these strategies

The market has been generous to investors in 2024, and those who are themselves in the giving spirit can benefit from sharing some of those winnings with their favorite charities. On the holiday calendar, Giving Tuesday comes right after Cyber Monday, marking a day for individuals to consider donating to their favorite charities. With the S & P 500 up more than 26% in 2024, cash might not be the best way to give money to organizations. Instead, a direct gift of appreciated assets, be they stocks, mutual funds or even cryptocurrency, is the savviest way to share the wealth. “Cash used to be the No. 1 asset contributed to the program,” said Brandon O’Neill, charitable planning consultant at Fidelity Charitable, a donor-advised fund sponsor. “If you gift an appreciated asset, not only do you get a tax deduction, you also avoid a capital gains tax liability.” That’s because investors who cash out of a stock are subject to capital gains taxes on any appreciation. Non-cash assets, including stocks, made up 63% of the contributions to Fidelity Charitable in 2023. And this year, cryptocurrency donations totaled $688 million as of Nov. 19, according to the organization. The charitable deduction Individuals who itemize deductions on their tax returns – that is, their itemized deductions exceed the standard deduction of $14,600 for single filers or $29,200 for those married and filing jointly in 2024 – are eligible to take a write-off of their charitable donations. If an asset has been held for at least a year, you can instruct your broker to give it away to any charity and calculate the tax deduction based on the fair market value of the asset at the time of donation. Because of this, the best assets that you can give away from a tax-savings perspective tend to have a low cost basis and high appreciation. “The taxpayer gets the fair market value of the donation, versus the cost basis, so [the donation] has much more impact on their own personal tax return,” said Miklos Ringbauer, a certified public accountant at MiklosCPA in Los Angeles. See below for a list of S & P 500 stocks that have had a hot run in 2024. Defense tech play Palantir Technologies and power giant Vistra Corp. are both up more than 300% this year. There are also portfolio benefits to making these donations. For starters, they can help trim down heavy concentrations in positions that have grown too large. Donations can also help employees who are paid in stock diversify away some of their exposure, according to Christine Benz, director of personal finance and retirement planning at Morningstar. “Often a really good candidate for this giving would be employer stock – that typically is adding substantial risk to the portfolio, with the concentration,” she said. “We’ve seen more broadly dispersed gains this year, but U.S. large-cap stocks have had a phenomenal run and it’s a logical place to look if you want to reduce risk and make a charitable gift,” Benz added. Two ways to give With the standard deduction being so high, it might make the most sense for donors to “bunch” several years of donations into one go. By transferring appreciated assets to a donor-advised fund, investors can simplify their giving and make grants to multiple organizations. “You can use that bunching strategy where you itemize deductions in some years and take a standard deduction in the others,” said Benz. For older investors – particularly those over age 70 1/2 – the best move might be to make a qualified charitable distribution (QCD) from an individual retirement account, assuming they don’t need the money. While IRA withdrawals are subject to taxes, QCDs aren’t – as long as they are sent directly to a qualified charity by the trustee. In 2024, an eligible IRA owner can exclude up to $105,000 in QCDs from their taxable income. Since IRA owners don’t need to start taking required minimum distributions from their IRAs until they are 73, QCDs starting at age 70 1/2 can help investors reduce their balance – and in turn, this can lower the RMDs they will be required to take in the future, Benz said.

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