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Giving strategies in action

Five examples of tax-smart charitable giving in 2024

See how donors apply different giving strategies to achieve their philanthropic goals

 

February 29, 2024

 

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Are you reflecting on your 2023 income tax return and considering what you might have done differently to lower your taxes? Tax season is an ideal time to think about your overall financial planning goals, including charitable giving, for 2024. In this article, we provide you with an overview of the current giving environment, as well as introduce you to five donors to see their giving strategies in action – and help you consider what might work with your broader planning goals.

 

2024 giving and tax landscape

As you probably know, there are numerous tax benefits associated with charitable giving. This starts with the ability to claim charitable deductions for your donations, assuming you itemize deductions. The annual deduction limit for gifts to public charities, including donor-advised funds, is up to 30% of adjusted gross income (AGI) for donations of non-cash assets held longer than one year and up to 60% of AGI for donations of cash. If your 2024 charitable deduction amount exceeds these AGI limits, you may carry the excess amount forward up to five additional tax years, subject to AGI limits in each year.

Itemizing deductions makes sense if the total of all deductions exceeds your standard deduction. For 2024, the standard deduction amount is $14,600 for single filers and $29,200 for married couples filing jointly.

Your instinct may be to give cash, but donations of appreciated non-cash assets held more than one year can unlock additional funds for charity in two ways: 

  • First, you potentially eliminate the 15% or 20% capital gains tax you would incur if you sold the assets and donated the proceeds, which may increase the amount available for charity by up to 20%. 
  • Second, you may claim a fair market value charitable deduction for the tax year in which the gift is made and may choose to pass on that tax savings in the form of more giving.

Finally, if you have a traditional IRA and are age 70½ or older, you can consider a special tax benefit available with your account: giving up to $105,000 of Qualified Charitable Distributions (QCDs) in 2024 to operating charities (excluding donor-advised funds) tax-free.* While withdrawals from traditional IRAs are taxable income, QCDs are not and can satisfy some or all of your annual required minimum distribution (RMD) if you’re age 73 or older. QCDs can also be used whether you take the standard deduction or itemize deductions, but note that you cannot claim a tax deduction for a QCD.

You may also direct a one-time, $53,000 QCD, within the $105,000 limit, to a charitable remainder trust or charitable gift annuity as part of recently passed SECURE Act 2.0 legislation.

 

Five donors putting five tax-smart giving strategies into action  

Despite market volatility and economic uncertainty in 2023, Schwab Charitable™ donors recommended over $6.1 billion in grants to charity, an increase of 31% compared to 2022. See if you identify with the five donors below and whether their giving strategies can help you give more to charity while saving more on your income taxes in 2024.

Smiling businesswomen at desk

1. Carla donates highly appreciated stock while reducing an oversized position in her investment portfolio and minimizing her taxes.

Carla purchased 2,000 shares of publicly traded XYZ stock five years ago at $5 per share. The stock has appreciated to $50 per share and become an oversized position in her otherwise diversified portfolio.

She wants to use 1,000 of her shares to create a large gift to charity this year. Carla could sell the shares, pay capital gains taxes on the amount of appreciation, and donate the after-tax proceeds to a donor-advised fund or other public charity, as shown in Option 1. However, by donating the stock directly to a charity and eliminating capital gains taxes, as shown in Option 2, she can increase the amount available for charity and generate additional tax savings.

 

The actual deduction value is generally the average of the highest and lowest quoted selling prices on the date of the gift.

This hypothetical example is only for illustrative purposes. The example does not take into account any state or local taxes or the Medicare net investment income surtax. The tax savings shown is the tax deduction, multiplied by the donor’s marginal income tax rate (24% in this example), minus the long-term capital gains taxes paid.

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2. Amelia and Hudson bunch two years of charitable contributions into one year to maximize both itemized and standard deductions. 

Amelia and Hudson are a married couple with no children. Annually, they have $23,000 of itemized deductions, including $10,000 in donations to a donor-advised fund that they use for giving to multiple charities.

Because their total deduction amount is below the standard deduction for both 2023 and 2024, Amelia and Hudson could take the standard deduction each year, and over two years they would claim a total of $56,900 in standard deductions, as shown in Option 1.

If Amelia and Hudson instead take a tax-smart approach and bunch two years of donations into a single year, as shown in Option 2, they would end up with a $62,200 overall deduction for the two years, using both itemized deductions and their standard deduction.

 

Standard deduction amounts for 2025 will not be announced until later in 2024, so this example uses the 2023 and 2024 tax years.

This hypothetical example is only for illustrative purposes. Schwab Charitable does not provide tax advice, so please consult your legal or tax advisor about your specific situation.

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3. Juan gives with his IRA to satisfy his RMD and lower his taxable income. 

Juan is 75 and has a traditional IRA valued at $1,050,000, resulting in a projected required minimum distribution (RMD) of $42,683 for 2024. Juan will already have $80,000 of income in 2024 and he doesn’t want the IRA RMD for income, so he would like to donate this amount to charity.

In Option 1, Juan takes his RMD, which increases his income to $122,683. He uses that $42,683 to make donations to charity and will claim a charitable deduction when he itemizes deductions. 

In Option 2, Juan uses an IRA qualified charitable distribution (QCD) to charity and satisfies his RMD. He then takes the $14,600 standard deduction when filing federal income taxes, plus an additional standard deduction of $1,950 because he is over 65 and has a single filing status. This approach – giving with a QCD – lowers Juan’s taxable income by $16,550.

 

This example is only for illustrative purposes. Both examples assume no Social Security income and that the charitable gift is to an operating charity.*

Two coworkers in discussion

4. Olivia makes a large donation and claims a charitable deduction that offsets her tax liability on converting her traditional IRA to a Roth IRA.  

Olivia wants to convert her traditional IRA to a Roth IRA. The primary benefits of a Roth IRA are tax-free growth, tax-free withdrawals (if holding period and age requirements are met), no annual RMD, and elimination of tax liability for beneficiaries (depending on the timing).

Her traditional IRA has a balance of $100,000. Converting the account to a Roth IRA involves withdrawing the assets, and the withdrawal is considered ordinary income. Olivia will be in the 24% income tax bracket, so her income tax on the withdrawal would be $24,000. This would be a large and unexpected tax bill but also a tradeoff for having tax-free withdrawals from the Roth IRA in retirement.

Olivia’s financial advisor suggests that she could increase her charitable giving this year to $100,000, an amount that entirely offsets the income tax on the withdrawal.

 

This hypothetical example is for illustrative purposes only. The example does not take into account any state or local taxes or the Medicare net investment income surtax.

Businesswoman in discussion

5. Chloe donates part of a private business interest while reducing the concentrated position in her investment portfolio. 

Chloe, a co-founder at privately owned Corporation ABC, plans to use $1 million of her ABC holdings to fund her philanthropic goals and reduce the concentrated position the stock has in her portfolio. The shares have a cost basis or original cost of $50,000. As there is no easily identifiable market for ABC stock, Chloe’s company has a buyback program in place.

In Option 1, if Chloe transfers the $1 million of shares to ABC, pays the 20% federal capital gains taxes, and donates the after-tax proceeds, her tax savings would be $109,700. 

She decides to instead open a donor-advised fund account with Schwab Charitable and donate the stock to Schwab Charitable, as shown in Option 2. The account is an easy way for Chloe to give the money to other charities, and by donating the stock she eliminates capital gains taxes on the amount of appreciation. Chloe works with Schwab Charitable’s staff to complete the necessary paperwork for the assignment of $1 million shares of ABC to Schwab Charitable and transfer back to ABC through the company’s buyback program. This approach increases Chloe’s charitable contribution and tax deduction and increases her tax savings.

 

This hypothetical example is only for illustrative purposes. The example does not take into account any state or local taxes or the Medicare net investment income surtax. The tax savings shown is the tax deduction, multiplied by the donor’s income tax rate (37% in this example), minus the long-term capital gains taxes paid. In Option 2, while the charity will receive $1,000,000 upon sale, the qualified appraisal for tax deduction purposes will likely apply a minority discount, which is not reflected in this case study for simplicity.

What you can do next

We encourage you to discuss your philanthropic goals and explore potential giving strategies for 2024 with financial, tax, or legal advisors. Schwab Charitable also offers articles, tools, and other resources to inform and guide you throughout your philanthropic journey. Additional resources for tax season include:

 

For questions or assistance with charitable planning or giving, you and your advisors may:

  • Contact us or request an information kit
  • Speak with a charitable specialist at 855-966-3764 
  • Follow us on LinkedIn

Coauthors: 

Caleb Lund, CAP® 
Director of Charitable Strategies Group 
Schwab Charitable™

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

*Operating charities, or qualifying public charities, are defined by Internal Revenue Code section 170(b)(1)(A). Donor-advised funds, supporting organizations, and private foundations are not considered qualifying public charities. 

A donor’s ability to claim itemized deductions is subject to a variety of limitations, depending on the donor’s specific tax situation. Donors should consult their tax advisors for more information.  

The Schwab Center for Financial Research is a division of Charles Schwab & Co., Inc., a subsidiary of The Charles Schwab Corporation. 

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