Strategic charitable giving can reduce your taxes while increasing your impact. The difference between smart and basic giving can be tens of thousands of dollars.
The Basics of Charitable Deductions
Who Can Deduct?
Only if you itemize deductions. With the standard deduction at $14,600 (single) / $29,200 (married) for 2024, many donors don't benefit.
Deduction Limits
- Cash: Up to 60% of AGI
- Appreciated assets: Up to 30% of AGI
- Excess carries forward 5 years
Strategy 1: Donate Appreciated Stock
The most powerful charitable giving strategy for investors.
How It Works
Instead of donating cash:
- Donate stock that has increased in value
- Avoid capital gains tax on the appreciation
- Deduct the full market value
Example
| Method | Cash Donation | Stock Donation |
|---|---|---|
| Original cost | $10,000 | $10,000 |
| Current value | $10,000 | $25,000 |
| Capital gains tax saved | $0 | ~$2,250 |
| Deduction value | $10,000 | $25,000 |
| Tax benefit (24% bracket) | $2,400 | $6,000 |
Donating $25,000 in stock costs you less than donating $10,000 in cash.
Pro Tip
Only donate stock held more than 1 year for full market value deduction. Under 1 year, deduction is limited to cost basis.
Strategy 2: Donor-Advised Funds (DAFs)
A DAF is a charitable investment account. You get the deduction NOW, but distribute to charities LATER.
Benefits
- Front-load deductions: Bunch multiple years of giving into one year
- Beat the standard deduction: Turn non-deductible gifts into deductible ones
- Investment growth: Funds grow tax-free while you decide
- Simplify giving: One tax receipt, multiple gifts
The Bunching Strategy
Instead of giving $10,000/year (below itemization threshold):
- Year 1: Give $50,000 to DAF, itemize deductions
- Years 2-5: Take standard deduction, recommend grants from DAF
Same total giving, but with significant tax savings.
Popular DAF Providers
- Fidelity Charitable
- Schwab Charitable
- Vanguard Charitable
Minimums as low as $0-$5,000 to start.
Strategy 3: Qualified Charitable Distributions (QCDs)
For retirees age 70½+, this is often the best option.
How It Works
Send IRA money directly to charity (up to $105,000/year):
- Counts toward RMD
- Excluded from taxable income
- No itemization required
Example
| Method | Traditional Donation | QCD |
|---|---|---|
| Take $10,000 RMD | +$10,000 income | — |
| Donate $10,000 | -$10,000 (if itemizing) | — |
| Net taxable income | $0 (best case) | $0 |
| Bonus: AGI reduction | No | Yes |
Pro Tip
QCDs reduce AGI, which can lower Medicare premiums, Social Security taxation, and other AGI-based calculations. Regular deductions don't do this.
Strategy 4: Charitable Remainder Trusts (CRTs)
An advanced strategy for large appreciated assets.
How It Works
- Transfer appreciated asset to CRT
- CRT sells asset (no capital gains to you)
- CRT pays you income for life
- Remainder goes to charity at your death
Benefits
- Diversify concentrated positions
- Get immediate partial deduction
- Receive income stream
- Support charity
Best for: Large unrealized gains, need income, charitable intent.
Comparing Strategies
| Strategy | Best For | Minimum |
|---|---|---|
| Cash | Small donors | $0 |
| Appreciated stock | Investors with gains | $0 |
| DAF | Bunching, convenience | $0-5,000 |
| QCD | Retirees 70½+ | $0 |
| CRT | Large appreciated assets | $100,000+ |
Timing Considerations
Year-End Giving
- Establish DAF by December 31
- Complete stock transfers early (3-5 days for settlement)
- QCDs take time to process
High-Income Years
- Maximize giving when in higher brackets
- Stock option exercises
- Business sale years
- Roth conversion years
Documentation Requirements
Keep for all donations:
- Written acknowledgment from charity (for $250+)
- Date and fair market value
- For non-cash: description of property
- For DAF: contribution confirmation
The Bottom Line
Quick Win
If you own appreciated stock and plan to give to charity, donate the stock directly instead of cash. You'll avoid capital gains tax and still get the full deduction.
Strategic charitable giving aligns your values with tax efficiency. The same generosity can have significantly more impact with the right approach.