The Gift of Tax-Smart Giving: Year-End Strategies for High-Earners
Hello there, I’m Tony, and welcome to another Financial Friday!
Last week, we deployed our Black Friday Shield and focused on defensive spending—setting clear limits to protect our Monthly Money from holiday debt.
This week, we shift to offense.
As established professionals on the journey of The Financial Ascent, December isn’t just about shopping; it’s the critical deadline to execute tax-smart strategies that can save you thousands.
Charity is a core value for many of us. But for high-earners like you, simply writing a check is often the least efficient way to give. Let’s make sure your generosity achieves a powerful double benefit: making a great impact and cutting your tax bill.
1. The Power of Paperwork: Don’t Forget the Basics
Before we dive into the advanced strategies, let’s nail the simple stuff, because every dollar counts on your tax return.
- Cash is Simple: If you make an outright donation of cash or use your credit card, you get a direct itemized deduction (up to 60% of your Adjusted Gross Income, or AGI). But remember, you need to itemize your deductions for this to matter. If you do use a credit card, at least make sure it’s a cash-back rewards card to get some money back!
- Non-Cash Deductions: That old couch to Goodwill or those clothes to the Salvation Army? You can deduct the fair market value of those items.
- Actionable Step: For any non-cash gift, you must get a receipt and itemize the donation. For itemizers, those receipts are worth real money. The most common mistake I saw as an advisor was people throwing out these receipts. Hold onto those records!
2. The Double Benefit: Donating Appreciated Stock
This is the single most powerful and overlooked strategy for Ascenders with taxable brokerage accounts. If you have any stocks that have gone up significantly since you bought them (appreciated assets)—which is likely after a strong market year—you should almost never sell them to get cash for charity.
The Problem with Selling
If you sell a stock to donate the cash, you immediately trigger capital gains tax on the profit. That tax bill shrinks the amount of money you have left to give—and it costs you. Do yourself and your charities a favor and be efficient!
The Tax-Smart Solution
Instead of selling, donate the stock directly to a qualified charity.
- Benefit 1 (Deduction): You get an immediate income tax deduction for the full fair market value of the stock, just as if you had donated cash.
- Benefit 2 (Avoidance): You completely avoid paying the capital gains tax on the profit you never realized.
This is a Monthly Money masterstroke: the IRS lets you deduct the gain without ever taxing you on it. It maximizes your giving power and frees up more money for your investment portfolio.
3. The High-Earner Play: Charitable Bunching with a DAF
For high-earning households, a major challenge is that the Standard Deduction is so high, many struggle to clear the bar to make itemizing worthwhile. This is where bunching comes in—it’s the perfect blend of tax strategy and consistent giving, and it’s why the Donor-Advised Fund (DAF) is your new best friend.
What is Bunching?
Bunching is when you consolidate two or more years’ worth of charitable giving into a single calendar year.
- Year 1 (The Bunch Year): You make a large donation that—when combined with your mortgage interest and state taxes—pushes your total itemized deductions above the Standard Deduction threshold. You itemize and take the massive tax break this year.
- Year 2 & 3 (The Standard Years): You revert to taking the Standard Deduction, which is now the more efficient choice.
The Role of the Donor-Advised Fund (DAF)
The DAF is a simple, low-cost account housed at a public charity (like Fidelity, Schwab, or Vanguard). It makes bunching possible and flexible:
- Immediate Deduction: You contribute the bunched amount (cash or appreciated stock) to the DAF in your “Bunch Year” (e.g., 2025) and receive the full tax deduction now.
- Consistent Giving: The money in the DAF is invested tax-free. You then recommend grants from that DAF to your favorite charities monthly or annually over the next two or three years.
This allows you to achieve the massive one-time tax saving you need, while maintaining the consistent, life-changing support your charities rely on. It’s the ultimate expression of the Monthly Money philosophy applied to giving.
Your Actionable Step Before December 31st
The clock is ticking on 2025. If you want to use these strategies, the transactions must settle by the end of the year.
- Actionable Step: Review your brokerage account. Identify any long-term holdings (held for more than one year) that have significant unrealized gains. Contact your financial institution today about making a direct transfer of that stock to a charity or a new DAF.
This single move can easily net you a triple-digit deduction on your tax return. That’s more Monthly Money in your pocket, ready to fund your own ascent.
Your Next Action: If you don’t already have one, start the paperwork to open a Donor-Advised Fund (DAF) today, and identify a position in your investment account with high appreciation that you could donate.
