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Charitable Giving Strategies for 2024: Maximizing Impact and Tax Benefits

By April Rosenberry, JD, LLM in Taxation
Director of Estate, Tax, and Financial Planning

As we start year-end planning, charitable giving remains one way to support causes close to your heart while taking advantage of tax-efficient strategies. With anticipated tax law changes on the horizon and a continued focus on maximizing giving power, it may be beneficial to explore some options available to those that are charitably inclined.  

This article highlights three charitable giving strategies: Donor-Advised Funds (DAFs), Qualified Charitable Distributions (QCDs), and Charitable Remainder Trusts (CRTs). 

1. Donor-Advised Funds (DAFs) 

A Donor-Advised Fund (DAF) is one popular option due to simplicity and tax advantages. A DAF is a charitable investment account that allows individuals to contribute assets to support charities. DAFs allow donors to make charitable contributions, receive an immediate tax deduction, and recommend grants to charities over time.  

Key Benefits for 2024: 

• Immediate Tax Deduction: When a person contributes to a DAF, they receive an income tax deduction in the year the donation is made. The tax deduction allowed is up to 60% of Adjusted Gross Income (AGI) for cash donations and up to 30% of AGI for securities and other appreciated assets (such as closely held stock). Any excess contribution may be carried forward and deducted up to the applicable limit in the 5-year period after the year of contribution. 

• Flexibility: Once donors contribute to their DAF, the funds are irrevocably dedicated to charitable giving. However, the funds are “donor-advised,” meaning that while donors have no direct control over the fund, they can recommend how their funds are invested and which charities will be granted disbursements over time. The ability to recommend grants over time allows donors to structure their giving to meet their potentially evolving charitable wishes. 

• Growth Potential: Contributions to a DAF can be invested, allowing the fund to grow tax-free over time. This can allow an increase in the charitable impact of the original gift.  

DAFs may be ideal for donors who want to make irrevocable charitable contributions now, and receive an immediate tax deduction, but disburse funds to charities over time.  

 2. Qualified Charitable Distributions (QCDs) 

A Qualified Charitable Distribution (QCD) allows individuals aged 70½ or older to make a distribution of funds from Individual Retirement Accounts (IRAs) directly to a qualified charitable organization. In 2024, the QCD limit is $105,000 per person. For married couples, each spouse can make a QCD up to the $105,000 limit for a potential total of $210,000 in 2024. 

This method bypasses traditional income tax liabilities that would otherwise apply to IRA withdrawals because the gift goes directly to the charity. In that way, the dollar amount of the QCD never passes through the individual’s hands and may be excluded from their taxable income.  

To better understand QCDs, it may be helpful to also understand required minimum distributions (RMDs). Beginning in 2023, the SECURE 2.0 Act raised the age to begin taking RMDs to 73. At that age, individuals are required to take RMDs even if they do not need or want the funds. That RMD then increases the IRA holder’s total taxable income, which can then potentially push them into a higher income tax bracket and may limit or eliminate certain tax deductions.  

Key Benefits for 2024: 

• Satisfy Required Minimum Distributions (RMDs): QCDs can satisfy part or all of an individual’s RMD for the year, helping to avoid additional taxable income. 

• Income Tax-Free Distribution: Unlike traditional IRA withdrawals, which are taxed as ordinary income, QCDs are not included in taxable income. This can be particularly advantageous for high-net-worth individuals looking to minimize their income tax burden while supporting charities. 

• Low-Impact Giving: By using pre-tax dollars to make charitable contributions, QCDs can be a tax-efficient way for retirees to give directly to charities.  

QCDs may be suitable for retirees who are required to take RMDs but prefer to avoid the taxable income associated with those withdrawals. They may also be effective for individuals with significant assets in tax-deferred retirement accounts who do not need all of the assets to live on. 

3. Charitable Remainder Trusts (CRTs) 

A Charitable Remainder Trust (CRT) is a tax-exempt irrevocable trust designed to provide income to the donor or other beneficiaries for a specified period, with the remainder of the assets eventually going to charity. The remainder donated to charity must be at least 10% of the initial net fair market value of all property placed in the trust. In 2024, an individual may use up to $53,000 of their QCD to make a one-time donation to a CRT.  

Key Benefits for 2024: 

• Income Stream: With a CRT, donors can receive an income stream for a set number of years or for life, depending on the terms of the trust. This can provide financial security while still making a charitable impact. 

• Tax Deduction: Donors receive an income tax deduction based on the present value of the remainder interest that will eventually pass to charity. If the CRT is funded with cash, the donor can deduct up to 60% of AGI; if appreciated assets are used to fund the CRT, up to 30% of their AGI may be deducted in the current tax year.  Any excess contribution may be carried forward and deducted up to the applicable limit in the 5-year period after the year of contribution. 

• Capital Gains Tax Deferral: When highly appreciated assets (such as stocks or real estate) are contributed to a CRT, the donor avoids immediate capital gains taxes. The trust can sell the assets after they are donated to the CRT, reinvest the proceeds, and distribute income to the donor without triggering capital gains taxes. 

• Estate Tax Reduction: Assets transferred to a CRT are removed from the donor’s taxable estate, which can be a significant benefit for individuals with large estates who are looking to minimize estate tax exposure. 

CRTs offer a unique combination of philanthropy and income generation. They may be a good fit for donors who want to secure an income stream while ultimately supporting their favorite charities and reducing estate tax liabilities. 

NEXT STEPS
Whether you aim to maximize the tax benefits of your generosity or simply help ensure your resources are used in the most impactful way, incorporating these charitable strategies into your year-end planning may be one way to give back while helping to secure your financial future. 

Selecting the right charitable giving strategy depends on several factors, including your financial goals, the assets you wish to donate, and the tax implications. It is important to schedule a time to talk with your advisor to determine which strategies may maximize the charitable impact and tax benefits for your personal situation.   

SEIA is not engaged in rendering legal, accounting, or tax services. We recommend that all investors seek out the services of competent professionals in any of the aforementioned areas. Signature Estate & Investment Advisors, LLC (SEIA) is an SEC-registered investment adviser; however, such registration does not imply a certain level of skill or training and no inference to the contrary should be made. Securities offered through Signature Estate Securities, LLC, member FINRA/SIPC. Investment advisory services offered through SEIA, 2121 Avenue of the Stars, Suite 1600, Los Angeles, CA 90067, (310) 712-2323.