How to Maximize Charitable Giving for Tax Benefits

As we approach the end of the year, many investors focus on helping others and on any year-end tax reduction moves they can make to reduce their tax bill for the current year. Fortunately, charitable giving is a win-win in terms of accomplishing both goals.

What are Charitable Contributions?

Charitable contributions are donations made to charitable organizations directly or to a fund that will manage the donations and allow you to give the money to one or more charities over time. Charitable contributions may be tax deductible if you are able to itemize deductions on your tax return.

Types of Charitable Contributions

Contributions can be made in cash or by gifts of appreciated securities or other assets. Some people choose to establish a donor advised fund (DAF) or private foundation to which they make tax-deductible contributions and then allocate funds to the charitable organizations of their choice over time. Wedbush Securities partners with American Endowment Fund, a sponsor of donor advised funds. Be sure to speak with your financial advisor regarding the unique opportunity that this provides.

Maximizing the Tax Benefits

For a charitable contribution to benefit you from a tax perspective, the donation must be made before the end of the tax year that you plan to claim the deduction in.

Bunching contributions into a single year can help you reach the threshold where you are able to claim your charitable contributions as a deduction for the current tax year. By bunching, we mean taking the amount of contribution that you might make over two or more years and bunching those contributions into a single tax year.

Even with the increased standard deduction limits included with the Tax Cuts and Jobs Act legislation, itemized deductions are generally a better option in terms of tax savings. This is where a strategy like bunching contributions into a single year can pay off.

Donor advised funds are funds administered by a third party such as a brokerage firm. You can contribute cash or other assets to the account. You receive a charitable deduction in the year of your contribution. You can then make donations to eligible charitable organizations over time. Wedbush Securities partners with American Endowment Fund, an independent, national sponsor of donor advised funds with $6B in foundation assets.

Using appreciated securities to make your contributions can offer several advantages. Your contribution amount will be the market value on the day of the contribution. Not only will you be eligible for a tax deduction of the contribution amount, but contributing appreciated securities eliminates any capital gains taxes that would be incurred if the securities had been sold outright.

For those who are at least age 70 ½ and who have a traditional IRA account, you may choose to give via qualified charitable deductions (QCDs). These are contributions made from their account to a qualified charitable organization and are tax-free withdrawals from the IRA. For those who must take required minimum distributions, QCDs can be used to meet some or all of this requirement. For those who do not need some or all of the money from their RMD, QCDs can reduce the tax hit.

Keeping Accurate Records

As with any other tax deduction you take, it is important that you keep all records regarding any charitable contributions. Be sure to get a verification from the charity to which you donated so that if there are any questions from the IRS, you can verify the amount contributed and that you are deducting. Be sure to keep any canceled checks, receipts from electronic donations and other types of verification generated when making the contribution.

Choosing The Right Charities

Choosing the right charities is important from the standpoint that you want to be sure that your donations are in line with your values and what is important to you. It is also important from the standpoint that you want to ensure that your contributions will be tax-deductible. Tools such as the IRS search tool can help you be sure that your donations are going to a legitimate charitable organization.

Tax Law Changes and Updates

For tax years 2020 and 2021, the deduction for cash contributions was up to 100% of your adjusted gross income (AGI). This has been reduced to a maximum of 60% for tax years 2022-2025; it drops to 50% after 2025.

The Secure Act 2.0 legislation added the option for those who are eligible to do QCDs to take up to $50,000 and divert that to a Charitable Remainder Trust or to a Charitable Gift Annuity. Under Secure 2.0 beginning in 2024, the annual limit of $100,000 for QCDs will be increased each year for inflation.

Charitable giving can be a win-win in terms of tax planning and helping causes you believe in. Contact your Wedbush financial advisor to discuss how to incorporate charitable giving as part of your overall financial planning strategy.


Wedbush Securities does not provide tax or legal advice. Please consult your tax or legal advisor. 

These materials are provided for general information and educational purposes based upon publicly available information from sources believed to be reliable — we cannot assure the accuracy or completeness of these materials. The information presented is not intended to constitute an investment recommendation for, or advice to, any specific person. The information presented here is not specific to any individual’s personal circumstances. To the extent that this material concerns tax matters, it is not intended or written to be used, and cannot be used, by a taxpayer for the purpose of avoiding penalties that may be imposed by law. Each taxpayer should seek independent advice from a tax professional based on his or her individual circumstances. The information in these materials may change at any time and without notice.