When should you talk to clients about their charitable giving?

September 18, 2024

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With more than 85% of affluent households giving generously to charity, it’s possible that many of your clients are already planning to make charitable donations by the end of the year.¹ Now is a great time to initiate charitable conversations and show your clients a more impactful way to give. We’ll walk you through suggestions on how to start the conversation, strategies to maximize your clients’ donations, and how you can make charitable giving easy for both clients and your firm.

Preparing for year-end giving conversations

Start by reminding clients that it’s always a good time to give, no matter the month of year. But year-end in particular presents an opportunity to discuss any significant taxable events your clients have experienced (or may experience) throughout 2024. Did their taxable income increase? Do they have a highly appreciated investment portfolio that makes sense to rebalance? Have they mentioned selling long-term highly appreciated property, business interests, or other illiquid assets by the end of the year? By making an informed charitable contribution before year-end giving deadlines, your clients are not only supporting the organizations they love, but they may also qualify for a current-year deduction if they itemize their taxes, potentially offsetting some or all the tax liabilities from those events.

Are there tax changes coming?

While this is an election year and uncertainty may exist, we do not anticipate any changes to the current tax landscape through the end of 2024, nor does there appear to be anything on the horizon that would fundamentally impact current charitable contribution tax rules.

That being said, the Tax Cuts and Jobs Act of 2017—which effectively doubled the annual standard deduction amount when it was passed by Congress—will expire at the close of 2025. It is possible that we may see new tax proposals next year, with any potential corresponding changes taking shape in 2025 or 2026.

In summary: There’s no reason for clients to hesitate on donating in 2024.

Other factors to consider

• Year-end deadlines and processing times. The donation deadline for a 2024 tax deduction is December 31, but it can often take time for donations to be processed. Know that some assets, especially certain non-cash assets, have longer processing lead times. We suggest you start planning with clients as early as possible to avoid any potential delays.
• IRS limits on charitable deductions. Tax deductions for charitable donations are generally limited to 50% of a client’s adjusted gross income (AGI). While the limit increases to 60% of AGI for cash donations, the limit decreases to 30% of AGI for donations of appreciated non-cash assets held more than one year.

Keep tax planning factors top of mind

One of the simplest ways to initiate charitable planning conversations with your clients is to reinforce the year-end as an opportune time to start tax planning.

Do you have clients that regularly give to charity? Or have some clients expressed an interest in making charitable contributions in 2024? Take the time to do a quick calculation with them to see if their itemized deductions will push them above their standard deduction. Whether a client takes the standard or itemized deduction is based on which deduction provides them with the largest tax benefit. If their total itemized deductions are greater than their standard deduction ($14,600 for single filers or $29,200 joint filers in 2024), then they’ll get the best tax benefit from itemizing. (There are numerous limits on how much a client can deduct, so be sure your client talks with their tax advisor or visits the IRS’s website for more information.)

“Bunch” two or more years of contributions into one year

If your client’s itemized deductions won’t push them above their standard deduction, you may want to introduce them to the tax-smart strategy of “bunching,” or combining multiple years’ worth of charitable contributions into one year.

Here’s how bunching works: If it suits your client financially, they may consider reaching into future planned donations to bolster their 2024 contribution to a point where their itemized deductions surpass their 2024 standard deduction.

Let’s review a hypothetical example. Say your client Denise just got a promotion and wants to make an annual $5,000 donation to her favorite charity. She’s a single tax filer and even with the $5,000 donation she won't exceed the standard deduction (see Option 1). One way she may be able to receive a tax benefit is by bunching two years’ worth of donations into one year (see Option 2). By bunching her contributions, Denise could have given the same amount to charity while realizing additional tax savings over two years.

Think holistically about your clients’ overall wealth portfolios

Consider broaching the topic of year-end giving by taking the time to review your clients’ full portfolios. If your clients hold long-term highly appreciated non-cash assets, they can make a more efficient charitable donation than cash. Why? If a client donates cash to charity, it often means they’ve already paid taxes on those funds, like regular income tax or investment capital gains tax. On the other hand, if a client contributes an appreciated asset, then they’re donating a pre-tax asset, potentially eliminating taxable income, and potentially allowing the client to receive a larger tax deduction.

Here’s how contributing a non-cash asset held more than a year can help your clients maximize their charitable donations:

• If a client contributes a highly appreciated non-cash asset held for more than a year, they may eliminate the capital gains tax they’d otherwise incur if they sold the asset before donating the proceeds. Depending on your client’s long-term capital gains tax rate, that can increase the amount available for charity by up to 20%.
• If your client itemizes their tax deductions, they may be able to claim a fair market value charitable deduction for the year they made the non-cash asset donation.
• Why is it important for your client to have held the asset for more than one year? For the most part, if a contributed asset is held for a year or less, the IRS limits the deduction to the asset’s cost basis, rather than its potentially higher fair market value (if its value has appreciated).

Using non-cash assets to maximize your clients’ giving

Here’s an example. Let’s say your client Tyson currently owns $50,000 of a stock, which he bought years earlier for $5,000. Tyson is in the 24% ordinary income tax bracket and the 15% long term capital gains tax bracket. If he sold the stock and donated the proceeds to charity, he’d be facing a $45,000 long-term capital gain (Option 1 below). But, if Tyson contributed the $50,000 in stock directly to charity or his donor-advised fund account, the contribution would not be subject to capital gains tax, generating not only additional tax savings for Tyson, but also additional funds available to charity.

Encourage legacy and retirement planning

For certain clients, there are additional charitable giving strategies that can be integrated into retirement planning conversations.

• For clients who are 59 ½ or older with tax-deferred retirement accounts (like traditional 401ks or IRAs), consider if a charitable donation—and therefore, charitable deduction if they itemize their taxes—can help them offset tax liabilities on account withdrawals.
• For clients who are 70 ½ or older with traditional IRAs, consider discussing a Qualified Charitable Distribution (QCD) with them. Clients can direct up to $105,000 per year from their traditional IRAs to operating public charities (excluding donor-advised funds).² Those QCD funds aren’t considered taxable income, and, if needed, a client can use a QCD to satisfy their IRA’s 2024 required minimum distribution (up to $105,000). However, the client wouldn’t get a tax deduction for a QCD because the amount donated was not included in their income.

How a donor-advised fund account makes it easy for your clients (and you)

One of the easiest ways to give is through a donor-advised fund (also known as a “DAF”): a simple, tax-smart giving vehicle that can help clients increase their giving power. DAFs are particularly useful when it comes to contributing appreciated non-cash assets clients may wish to donate, including stocks, bonds, ETFs, or even more complex illiquid assets like real estate or a privately held business.

A DAF works like this: A client starts by making a charitable contribution to a donor-advised fund account, which you’re able to open and manage on your client’s behalf, if your client desires. Because a donor-advised fund is a 501(c)(3) public charity itself, your client’s contribution may enable them to claim a current-year tax deduction (assuming they itemize when filing their taxes). As soon as funds are in the DAF account, your client can recommend grants to qualified U.S. charities of their choice right away, or they may choose to leave a portion of the funds in the account. Again, because donor-advised funds are public charities themselves, those funds left in the DAF can be invested for potential tax-free growth and granted out to charities in the future.

How DAFgiving360™ can help  

DAFgiving360 is one of the largest national providers of DAF accounts. DAFgiving360 was founded in 1999 as a resource to help donors achieve maximum impact with their charitable giving. The organization’s mission is to increase charitable giving in the U.S. DAFgiving360 does this by providing the tax-smart and simple giving solution of a DAF account to donors and financial advisors, as well as providing related philanthropic resources.

Teams at DAFgiving360 are equipped with specialized knowledge on contributing a multitude of asset types to charity. They can support you and your clients through each step of the contribution process, from the initial consultation through making the actual year-end contribution.

DAFs can enable you to deepen client relationships, provide extra value to your high-net-worth clients, and build relationships with other family members. DAFgiving360 offers advisors a wide range of investment choices regardless of account size. For accounts maintaining a minimum balance of $100,000, you can provide customized investment management while assessing an advisory fee for your services. Beyond that, working with DAFgiving360 can make processing easier for your firm. With seamless platform integration, all client contributions, grant recommendations, and associated paperwork sit in one centralized location.

What you can do next

• Share the client version of this article.
• Contact your DAFgiving360 Charitable Consultant.
• Learn more about incorporating charitable giving strategies into your practice or request an information kit. You can also email us or call 855-966-3764. 

Coauthors:

Caleb Lund, CAP^®
Director of Charitable Strategies Group 
DAFgiving360

Hayden Adams, CPA, CFP^®
Director of Tax Planning and Wealth Management  
Schwab Center for Financial Research