Year-End Charitable Planning: Key Considerations for Maximizing Your Philanthropy

Written by Meghann Smith Senior Analyst, LMC Family Office

As the year draws to a close, many families focus on charitable giving to fulfill philanthropic goals and optimize tax benefits. Successful year-end planning involves proper timing, understanding tax requirements, and choosing the right giving vehicles. With the 2024 tax year nearing its end, it’s essential to finalize your charitable strategies to ensure compliance and maximize your impact.

Timing of Charitable Gifts

To claim a tax deduction for 2024, donations must be completed by December 31, 2024. For mailed checks, ensure you have proof of mailing, such as certified mail receipts. To avoid last-minute issues, plan ahead and make sure to comply with IRS guidelines, such as receiving written acknowledgement from the charitable organization for donations over $250 that include:

• Name of the organization.
• Amount of cash contribution.
• Description (but not value) of non-cash contribution.
• Statement that no goods or services were provided by the organization.

Qualified Appraisal Requirements

For substantial noncash donations, meeting IRS appraisal rules is critical:

• Noncash donations over $5,000 require a qualified appraisal.
• For donations over $500,000, the appraisal must be attached to your tax return.

Ensuring proper documentation will help you avoid issues and secure your deductions. Our team at LMC Family Office can help manage these details, ensuring everything is handled correctly and efficiently.

Philanthropic Vehicles: Donor-Advised Funds and Private Foundations

Choosing the right charitable vehicle can simplify your giving and help you achieve your goals. Two commonly used vehicles are Donor-Advised Funds (DAFs) and Private Foundations.

Donor-Advised Funds (DAFs)

A Donor-Advised Fund provides flexibility when you want to contribute now but decide later which charities to support. You receive a tax deduction for the year that you contributed to the DAF and can distribute funds to charities over time.

Benefits of a DAF:

• Investment growth: Contributions grow over time.
• Flexibility: Decide when and where to donate at your convenience.
• Privacy: Allows the taxpayer the option to choose if their names are disclosed to the charities receiving funds.
• Reduced administrative burden: The DAF sponsor handles the administrative work and reporting requirements.

DAFs are an excellent option for individuals seeking a flexible and low-maintenance way to manage charitable giving.

Private Foundations

For families interested in creating a lasting philanthropic legacy, a Private Family Foundation offers more control over charitable efforts. Family members serve on the board and make decisions about how funds are distributed.

Key Features of a Private Foundation:

• Legacy-building: Establishes long-term charitable goals, with family members playing an active role.
• Annual distribution requirements: Must distribute 5% of assets under management annually.
• Higher complexity: Foundations require more administrative work, including filing tax returns and regulatory compliance.

While private foundations offer more control, they are also more complex and costly to manage. However, they are ideal for families looking for hands-on involvement in charitable work.

Additional Philanthropic Planning Options

Beyond DAFs and private foundations, more advanced charitable strategies are available:

• Charitable Remainder Trusts (CRTs): These allow taxpayers the option to make a charitable gift while retaining an income stream from the trust.
• Qualified Charitable Distributions (QCDs): Individuals over 70.5 can donate directly from an IRA, potentially reducing taxable income.

Common Mistakes in Year-End Philanthropic Planning

Several common mistakes can undermine your year-end giving efforts:

• Failing to make gifts by December 31.
• Not obtaining required charitable acknowledgment letters for donations over $250.
• Failing to secure a qualified appraisal for noncash donations over $5,000.
• Overlooking documentation of cost basis for donated securities.

Optimize Your Year-End Giving with LMC Family Office

As you finalize your year-end charitable planning, ensure that your gifts align with your philanthropic and tax goals. Whether you choose the flexibility of a Donor-Advised Fund or the long-term commitment of a Private Family Foundation, selecting the right vehicle is key to making the most of your giving.

At LMC Family Office, we’re here to help guide you through the process, ensuring your philanthropy reflects your values and maximizes its impact. For more information, Contact Nessim Azizo, LMC Family Office Co-Lead & Principal at [email protected] or Meghann Smith, LMC Family Office Senior Analyst at [email protected].