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Selecting the right assets to give to charity

December 05, 2024

If you plan on charitable giving, knowing how to choose the right assets to gift may help you maximize the value of your donations.

Contributors

Adam Frank

Managing Director, Head of Wealth Planning and Advice, J.P. Morgan Wealth Management

In the current environment there is certainly no shortage of causes needing urgent attention. If you’ve thought that this year is a good time to contribute to charity, selecting one – or several – and deciding on the amount you’d like to give is a great start. In order to maximize the value of your donations, it’s also critical to choose carefully which assets you plan to give. Here are a few considerations:

Lifetime giving: cash isn’t always king.

While cash and checks may be popular and simple ways to give to charities, long-term appreciated assets – including stocks, bonds or mutual funds – could offer better tax benefits to you.

For instance, subject to certain restrictions, if you contribute stock or certain other assets that you’ve held for over a year to either a private foundation or a public charity (including donor-advised funds), you can generally deduct the full fair-market value of the stock on your federal income tax returns. The amount you deduct can be up to 30% of your adjusted gross income (AGI) for gifts to a public charity and up to 20% of your AGI for gifts to a private foundation. You can carry forward any unused deduction for five years.

Donating appreciated stock has a benefit that does not apply to cash donations – you completely avoid paying capital gains tax on the appreciation.

Cash	Sell appreciated stock and contribute proceeds	Contribute appreciated stock
Value
$50,000	$50,000	$50,000
Cost basis
$50,000	$20,000	$20,000
Appreciation
N/A	$30,000	$30,000
Tax on sale¹
N/A	$9,000	N/A
Value of charitable gift (net proceeds)
$50,000	$41,000	$50,000
Deduction (subject to AGI limitations)
$50,000	$41,000	$50,000
Tax avoided
N/A	N/A	$9,000
Net benefit
$50,000 x tax rate	$41,000 x tax rate	$50,000 x tax rate + $9,000

This chart is for illustrative purposes only.

The type of charity to which you are donating might also impact the asset you plan to give. As noted, each year, the amount of a charitable gift you can deduct against your income tax is capped at a percentage of your AGI; that percentage is higher for gifts to public charities and donor advised funds than gifts to private foundations, and is higher for gifts of cash than gifts of non-cash assets. Depending on (i) how much you plan to give, (ii) how much you expect to deduct against your income taxes and (iii) the types of charities you want to support, you may want to give non-cash assets (like appreciated stock), cash assets, or a combination of both.

Over 70½? Consider giving directly from an IRA.

If you are 70½ or older and have an IRA, you can make a direct transfer of up to $105,000 in 2024 from your IRA to qualified charities and count that donation toward your required minimum distribution for the year. However, minimum distributions aren’t required until you are over 73 years old. In addition, private foundations, donor-advised funds, and supporting organizations are not considered qualified charities in this case.

The amount of your direct contribution from your IRA is not included in your taxable income for the year. Minimizing your income reduces the chance that your tax bracket will increase as a result of the required minimum distribution. Additionally, since these distributions aren’t considered income, they are not subject to charitable gift limits (but you also can’t take a deduction for them). If you don’t need your required minimum deduction and you have charitable goals, consider thoughtful use of your IRA to fulfill at least some of those goals.

Giving beyond lifetime: think about using retirement assets.

If creating a charitable legacy is part of your long-term goals, then using your retirement assets – including 401(k)s or traditional IRAs – may be the most efficient way to go about it.

This is because not only are these assets potentially subject to estate tax upon your death, but they may also be subject to income tax when your beneficiaries take withdrawals. While the beneficiaries get a deduction to reduce this double tax if your estate is large enough to be taxable, the combined income and estate tax rate on retirement assets can exceed 60%. On the other hand, retirement assets that pass to charity generally qualify for both the income and estate tax charitable deductions and pass to the charity without any tax at all.

If you decide to leave your retirement assets to charity, make sure:

Your beneficiary designations reflect your wishes, naming the appropriate charities.
If you’re married, get your spouse’s signature (if required) to acknowledge that he or she consents to your giving retirement assets to charity rather than to him or her.
Update your will or revocable trust to remove any existing charitable bequests that you intend to be otherwise covered by your retirement accounts; if you leave a bequest in your estate planning documents, charity will get both gifts – the gift as the beneficiary of your retirement account and the gift as the beneficiary of your will or revocable trust.

These strategies are only some of the ways you can work to help achieve your philanthropic goals. Be sure to connect with a tax or J.P. Morgan professional before making major moves.

References

1.Assuming 30% combined federal and state tax rate

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