Tax planning and charitable giving: What to consider now

Charitable giving comes in many forms. But whether it’s donating cash, cryptocurrency, publicly traded stock, real estate, a business, or something else, increasing your knowledge of tax planning strategies could help reduce the amount of money you may owe while potentially maximizing your gift.

“Taxes aren’t something many people prefer spending a lot of time thinking about,” says Stephanie Buckley, head of Philanthropic Services, Wealth & Investment Management, Wells Fargo Bank, N.A. “But it can really be worth your time. It also means having discussions with your financial advisor, CPA, attorney, and other wealth advisors to make sure all the nuances are covered.”

Here, Buckley shares some things you should consider when it comes to tax planning and charitable giving.

When tax planning for 2024

• If you expect to realize significant gains in 2024 from investment transactions or the sale of a business or real estate, consider implementing a charitable giving strategy prior to the sale to help reduce your tax bill. Your tax and other financial advisors can help outline a number of strategies to consider.
• Consider “bunching” several years’ worth of charitable contributions into a single year. This may increase your itemized deductions above the standard deduction threshold so you can receive a tax benefit for those gifts. Consider utilizing a donor-advised fund for “bunching” your charitable gifts: You may receive the tax benefit at the time you contribute to the donor-advised fund while choosing which charities you give to at a later time.
• If you are age 70½ or older, consider the potential benefits of a qualified charitable distribution (QCD). A QCD allows you to make a tax-free gift of up to $105,000 (indexed for inflation beginning in 2024) each year directly from your IRA (Traditional or Inherited, or inactive SEP or SIMPLE IRAs) to qualifying charities (exclusions include donor-advised funds and private non-operating foundations). Tax law in effect as of January 2023 increased the required minimum distribution (RMD) age to age 73 beginning in 2023 (age 75 in 2033). A QCD counts toward satisfying your RMD once you reach age 73 without the federal tax consequences of being included in your adjusted gross income (AGI). QCDs prior to age 73 are still not included in a donor’s gross income.1

Considerations when gifting to individuals

• Evaluate the tax benefits of gifting long-term appreciated stock held longer than one year versus cash. Your carryover basis and holding period will transfer to the recipient.
• If you gift stock that is in a loss position, the recipient cannot claim your capital loss. To receive a benefit from the capital loss deduction opportunity, consider selling the stock, using the loss yourself, and then gifting the cash proceeds.
• Be aware of the five-year gift rule when gifting to a 529 plan for education costs. You may elect to gift five years of annual exclusion gifts in one year without using your lifetime gift and estate tax exclusion amount. For 2024, the annual exclusion amount is $18,000 per individual, meaning the five-year rule allows a $90,000 gift to a 529 plan for each beneficiary. A married couple could transfer up to $180,000 out of their estate in one year for each beneficiary.
• Special and beneficial tax rules apply for certain gifts. You can directly pay school tuition or medical expenses for someone else without limitation. If the expenses are paid directly to the school or medical provider for the benefit of someone else, they do not count against the annual exclusion or lifetime gift exclusion.
• Gifts to individuals are not considered taxable income to the recipient and are not deductible by the giver for federal income tax purposes. Some states allow deductions, and some allow credits for contributions to a 529 plan. Keep in mind, the availability of such tax or other benefits may be conditioned on meeting certain requirements.

Consider giving strategies throughout the year

Buckley stresses that tax planning and charitable giving should be something that you consider year-round — not just at year-end. In fact, tax planning and charitable giving should be part of your considerations before any major financial transaction occurs.

“We have seen some clients who sell an asset (such as a business or real estate) and call after the fact, unfortunately resulting in their missing out on some potential tax benefits,” Buckley says.

Plus, thinking of charitable giving as a year-end activity means that you could be missing out on the ability to make a larger impact with your gifts. “If you’re waiting until the end of the year before considering donating money, you may have missed opportunities to assist those in need,” she says.

Communicating with your advisor and tax and legal advisors on a regular basis can also help you stay informed of potential changes in tax laws, Buckley adds. That knowledge can help you be proactive so you can maximize your giving while potentially minimizing your taxes.

1. irs.gov

Wells Fargo Wealth & Investment Management (WIM) provides financial products and services through various bank and brokerage affiliates of Wells Fargo & Company.

Please consider the investment objectiv es, risks, charges and expenses carefully before investing in a 529 savings plan. The official statement, which contains this and other information, can be obtained by calling your financial advisor. Read it carefully before you invest.

Wells Fargo & Company and its affiliates do not provide tax or legal advice. This communication cannot be relied upon to avoid tax penalties. Please consult your tax and legal advisors to determine how this information may apply to your own situation. Whether any planned tax result is realized by you depends on the specific facts of your own situation at the time your tax return is filed.

Donations are irrevocable charitable gifts. The sponsoring organizations maintaining the fund have ultimate control over how the assets in the fund accounts are invested and distributed. Donor Advised Funds donors do not receive investment returns. The amount ultimately available to the Donor to make grant recommendations may be more or less than the Donor contributions to the Donor Advised Fund. While annual giving is encouraged, the Donor Advised Fund should be viewed as a long-term philanthropic program. Tax benefits depend upon your individual circumstances. You should consult your Tax Advisor. While the operations of the Donor Advised Fund and Pooled Income Funds are regulated by the Internal Revenue Service, they are not guaranteed or insured by the United States or any of its agencies or instrumentalities. Contributions are not insured by the FDIC and are not deposits or other obligations of, or guaranteed by, any depository institution. Donor Advised Funds are not registered under federal securities laws, pursuant to exemptions for charitable organizations.