I start by determining if the client takes an itemized or standard deduction. If the client itemizes, I tend to recommend donating appreciated stock. This allows the client to avoid ever having to pay capital gains tax on the shares and allows the itemized deduction for the fair market value of the shares. If the client is under the threshold but tends to do a lot of giving each year, I might have them set up a Donor Advised Fund which allows them to take a deduction in the year of contributing to the fund and distribute donations from that fund each year. If the client is well under the threshold for being able to itemize, I would still have them consider donating appreciated stock to avoid capital gains even if they can't get the deduction. There are also occasions where it would be more advantageous to donate cash. There is no blanket answer for the best strategy for charitable contributions. Each client receives recommendations based on what is most advantageous for that client's situation. For clients who are age 73 or older who have required minimum distributions from tax-deferred retirement accounts (e.g. IRAs, 401ks, etc.), I often recommend donating from their retirement account. This is called a Qualified Charitable Donation (QCD) which reduces the taxable amount of the required minimum distribution.
When we're working with clients who regularly donate to charities, we discuss how bundling multiple years worth of donations in one tax year could make it possible for them to itemize their tax deductions for that year. For example, if a married couple usually takes the standard deduction, and they like to donate $10,000 to charities each year, they could donate 3 years' worth, or $30,000, in one tax year. Now they have more than the standard deduction for Married Filling Jointly and can also add more to their itemized deductions like mortgage interest and property taxes. For clients holding highly appreciated stock in their taxable account, we discuss the benefits of a Donor Advised Fund (DAF). They can donate shares at their fair market seeing the deduction benefit for that tax year. At the same time, they are also removing their future capital gain tax liabilities from the stock. Once the funds are in the Donor Advised Fund, they can send or grant donations to their charities over several years.
When discussing charitable contributions with clients, I emphasize the strategic benefits of aligning their philanthropic goals with tax planning. By strategically donating appreciated assets, clients can not only support causes they care about but also optimize their tax deductions. It's about making a meaningful impact while maximizing financial benefits for a well-rounded financial plan.