Giving back is personal but how you give can make a big difference, not only for the causes you support but also for your tax bill. Too often, I hear “I just wrote a check,” which is generous, but not always the most tax-efficient approach.
Here are four strategies that can help you make a bigger impact:
1. Donate Appreciated Investments Directly
If you own stocks, ETFs, or mutual funds you’ve held for more than a year, consider giving them directly to a charity. You’ll avoid capital gains tax and deduct the full market value of the gift.
Example: Jane owns $10,000 of stock she bought for $4,000. If she sells it, she owes capital gains tax on $6,000. If she donates it instead, she avoids the tax and gets a $10,000 deduction.
2. Donate Through a Donor-Advised Fund (DAF)
A DAF lets you make a large donation in one year (cash or appreciated assets), get the immediate tax deduction, and recommend grants to charities over time. Any funds not immediately distributed can grow tax-free.
Example: Brian contributes $25,000 of appreciated stock to a DAF in a high-income year, gets the full deduction, and gives $5,000/year to charities over the next five years.
3. “Bunch” Your Donations
With today’s higher standard deduction, some charitable gifts don’t reduce your taxes unless you itemize. By “bunching” several years’ worth of donations into one year (often through a DAF), you can exceed the deduction threshold that year, then take the standard deduction in others.
Example: Mark usually gives $10,000/year. Instead, he donates $30,000 this year to a DAF, itemizes deductions, and grants the funds to charities over three years — maximizing his tax benefit.
4. Give Directly from Your IRA (QCDs)
If you’re over 70½, you can send up to $105,000 per year directly from your IRA to a qualified charity using a Qualified Charitable Distribution (QCD). This counts toward your Required Minimum Distribution (if you’re 73+) but doesn’t count as taxable income — which may help lower taxes on Social Security and reduce Medicare premiums.
Example: Susan’s $20,000 RMD would normally push her into a higher tax bracket. By sending $15,000 directly to her favorite charity, she satisfies most of her RMD and keeps that amount off her tax return.
The Bottom Line
These strategies aren’t complicated, the key is talking about your charitable goals BEFORE you give. With a little planning, you can help the causes you care about and keep more of your hard-earned money away from the IRS.
If you’d like to explore which option makes the most sense for you, let’s talk before you write your next check.