The best time to plan your charitable giving may surprise you

There’s a reason the last quarter of the year is called “giving season” — it’s when charities kick off their year-end campaigns, leading to a noticeable jump in requests for donations. To respond generously, many may tap liquid assets from checking, savings or elsewhere to help fund chosen causes. While giving this way can work, it’s essentially a reaction, not a thoughtful strategy. And it’s not the most efficient way to give.

Luckily, there’s an easy alternative — establish an annual giving budget, regularly monitor your portfolio for appreciated assets throughout the year and gift them to a donor-advised fund (DAF) whenever their prices are high. “This discipline, called charitable gain harvesting, lets you prefund your charitable budget proactively and intentionally so that your giving can have the maximum impact,” says Donald Greene, National Donor-Advised Fund Executive, Bank of America Private Bank. 

By discussing charitable gain harvesting as part of your regular reviews with your financial advisor, you gain not just flexibility but also potential tax advantages. “When donors give reactively, they may be shortchanging themselves in missing out on untapped tax savings and unknowingly diminishing their charitable impact as a result,” Greene says.

Giving more than cash

While many donors turn to cash for charitable gifts, directly donating certain kinds of other assets offers several advantages. “Making charitable gifts of appreciated securities and complex assets is an important tool that enables financial advisors to maintain a disciplined adherence to their clients’ investment objectives without tripping unwanted tax obligations during periods of growth,” notes Chris Hyzy, Chief Investment Officer of Merrill and Bank of America Private Bank. By gifting stocks you’ve held for more than a year, you can save on capital gains taxes by as much as 20% and also deduct the full market value of the securities on your income taxes — potentially increasing your available giving budget.

Why year-round beats year-end

Most people concentrate their giving in the final months of the year, but market gains can occur at any time. In fact, stock investors have historically seen the greatest returns during the spring, when they’re less likely to be thinking about their charitable giving and more worried about paying last year’s income tax.

By instituting an annual giving budget and taking a year-round approach, you can look for opportunities to donate appreciated assets whenever you rebalance or strategically reposition your portfolio. If these changes mean selling appreciated stock, charitable gain harvesting can offer the additional benefits of avoiding taxes on those gains, prefunding your giving budget and securing a valuable deduction to offset next year’s tax bill.

While most giving takes place during the last three months of the year, historically, they haven’t been the most promising months for harvesting investment gains — those months belong to the spring and summer. (See the graphic above.) Similarly, October, the first month of the giving season, is historically one of the three least favorable for returns. The takeaway? Look to harvest rising investments when they’re available and leave yourself free to support your favorite charities whenever you choose.

Build charitable giving into your overall plan

Charitable gain harvesting can become a cornerstone of the disciplined, ongoing plan you develop and implement with your financial advisor.

Throughout the year, you and your advisor can approach each opportunity to rebalance or revisit your portfolio allocation as a chance to support your charitable vision, now and in the future. Make sure your advisor is aware of potential milestone events so that you can embed their benefits and implications into your plan.

Whether your plan includes seeding future giving through tax offsets achieved alongside the sale of a family business or real estate, launching a postretirement career as a philanthropist or establishing a charitable legacy, your financial advisor can help you anticipate and navigate through critical life events with foresight, purpose and impact.

Donor-advised fund and private foundation management are provided by Bank of America Private Bank, a division of Bank of America N.A., Member FDIC and a wholly owned subsidiary of Bank of America Corporation.

The Chief Investment Office (CIO) provides thought leadership on wealth management, investment strategy and global markets; portfolio management solutions; due diligence; and solutions oversight and data analytics. CIO viewpoints are developed for Bank of America Private Bank, a division of Bank of America, N.A., (“Bank of America”) and Merrill Lynch, Pierce, Fenner & Smith Incorporated (“MLPF&S” or “Merrill”), a registered broker-dealer, registered investment adviser, Member SIPC and a wholly owned subsidiary of Bank of America Corporation (“BofA Corp.”).