Charitable giving

Making the Most of Your Charitable Giving Before OBBBA Changes Take Effect

Charitable Giving, Philanthropy, Tax Planning / /

Americans have always shown incredible generosity. In fact, charitable giving reached an astounding $592.50 billion in 2024, according to Giving USA. If giving is already woven into your financial life, now is a great time to revisit your approach. Starting January 1, 2026, the One Big Beautiful Bill Act (OBBBA) will introduce permanent changes to how charitable gifts are treated for tax purposes, with the biggest effects felt by those who itemize deductions.

What’s Ahead in 2026: Updates to Charitable Deduction Rules

Beginning in 2026, the One Big Beautiful Bill Act (OBBBA) introduces permanent revisions to how charitable contributions are treated for tax purposes. Below is an overview of the key changes you’ll want to keep in mind:

Above-the-Line Deductions for Standard Deduction Filers

Starting in 2026, taxpayers who don’t itemize will still be able to claim a charitable deduction. The allowance is:

  • Up to $2,000 for couples filing jointly
  • Up to $1,000 for individuals

This deduction applies only to cash donations made directly to eligible public charities. It does not extend to gifts contributed through donor-advised funds (DAFs) or to non-cash contributions.

Reduced Charitable Deduction for Itemizers

Starting in 2026, those who itemize deductions will see a small but permanent reduction in the charitable deduction they can claim. The new rule trims 0.5% of adjusted gross income (AGI) from the total amount deductible, lowering the tax benefit of giving.

For instance, with an AGI of $400,000, the 0.5% reduction equals $2,000. Therefore, if you contribute $20,000 to charity, only $18,000 would count as a deductible expense under the updated rules.

Deduction Limits for High-Income Taxpayers

Beginning in 2026, individuals in the highest tax bracket will see a reduced benefit from charitable giving. The maximum value of deductions will be capped at 35%, compared to the current 37%. This change comes in addition to the new rule that trims 0.5% of adjusted gross income (AGI) from the amount eligible for deduction.

For example, if your AGI is $1 million in 2026 and you donate $50,000:

  • The 0.5% AGI reduction removes $5,000, leaving $45,000 as the deductible portion.
  • Applying the 35% limit, your tax savings would be $15,750.

Under today’s rules, the full $50,000 would qualify at 37%, resulting in $18,500 of tax savings. That’s a difference of $2,750, illustrating why it may be wise to plan charitable contributions before these new rules take effect.

What Stays the Same

Qualified charitable distributions (QCDs) from IRAs will remain one of the most tax-efficient ways for retirees to give. These gifts are still fully deductible, excluded from adjusted gross income (AGI), and untouched by the upcoming law changes.

5 Charitable Giving Moves to Consider Before 2026

While the OBBBA will soon bring lasting changes to charitable giving tax rules, there’s still time to take advantage of the current, more favorable framework. Here are a few strategies to consider putting in place before year-end:

#1: Accelerate Giving into 2025

If you anticipate making large charitable gifts in the coming years, it may be wise to move some of that giving into 2025. Doing so allows you to lock in today’s more favorable deduction rules before they change.

This approach can be particularly advantageous if:

  • You plan to itemize deductions in 2025.
  • Your income or deductions are likely to be lower in future years.
  • You’re in the top tax bracket and want to benefit from the current 37% deduction rate.

#2: Bunch Contributions to Boost Tax Efficiency

If you typically spread out your charitable gifts, consider grouping several years’ worth into 2025. By “bunching” donations, you may push your total contributions above the standard deduction limit, making itemizing worthwhile and increasing your overall tax savings.

For instance, rather than donating $10,000 in both 2025 and 2026, you could give $20,000 in 2025, itemize that year, and then take the standard deduction the following year. This way, you maximize deductions without altering the total amount you give.

Using a donor-advised fund can make this strategy even more effective. You claim the full deduction in 2025 while retaining flexibility to distribute funds to charities over time.

#3: Give Non-Cash Assets Before the Rules Change

Under the OBBBA and its new charitable giving rules, non-itemizers won’t be able to claim an above-the-line deduction for non-cash contributions such as clothing, household goods, or appreciated securities. In other words, unless you itemize, these gifts won’t provide a tax benefit.

If you currently itemize but expect to take the standard deduction in future years, consider making your non-cash donations in 2025 so you can still deduct their value under the existing rules.

Examples of non-cash contributions to consider this year include:

  • Gently used clothing and household items
  • Vehicles
  • Appreciated stocks or other securities
  • Collectibles or other tangible property

Remember to keep proper records of your donations, particularly for items worth more than $500.

#4: Take Advantage of QCDs at Age 70½+

For retirees, qualified charitable distributions (QCDs) remain one of the most tax-efficient ways to give. If you’re 70½ or older, you can transfer up to $108,000 in 2025 (inflation-adjusted) directly from your traditional IRA to a qualified charity, and the amount counts toward your required minimum distribution (RMD).

QCDs offer several advantages:

  • They don’t increase your AGI, which may help you avoid higher Medicare premiums and other income-related taxes.
  • They are unaffected by the OBBBA, meaning the tax benefits stay intact beyond 2025.
  • You can donate to multiple charities in one year while keeping your tax reporting simple.

Important: the transfer must go straight from your IRA custodian to the charity. If you withdraw the funds first, the amount will be treated as taxable income and won’t qualify as a QCD.

#5: Consider a Donor-Advised Fund (DAF)

A donor-advised fund lets you make a large, deductible gift now while giving you the flexibility to distribute the money to charities gradually. This can be an effective way to bunch donations or lock in today’s more favorable deduction rules while still supporting causes over time.

With a DAF, you can:

  • Claim the deduction in the year you contribute.
  • Decide later when and how to recommend grants to charities.
  • Contribute appreciated assets, such as stock, to avoid capital gains taxes while still receiving the full deduction (if you itemize).

One key note: starting in 2026, DAF contributions won’t qualify for the new above-the-line deduction available to non-itemizers. If you expect to use the standard deduction in future years, opening or funding a DAF before the rules change can help maximize your tax benefits.

Maximizing Your Charitable Giving Ahead of OBBBA Changes

With the OBBBA changes on the horizon, this is a good moment to be more intentional with your charitable giving. If generosity is part of the future you’re building, taking action before year-end can help you make an even bigger difference while taking advantage of today’s more favorable tax rules.

Explore our free resources for helpful tips, tools, and educational content to support your financial journey.

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The Intricate Dance of Charitable Giving and Taxes: What You Need to Know

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Charitable Giving and Taxes

Charitable giving is about more than just supporting causes you care about—it’s also an opportunity to make a tax-savvy move. But like most things tax-related, it’s rarely simple. Let’s unravel the complexities of charitable giving and taxes to help you maximize your generosity and tax benefits.

Federal Tax Rules: What Changed After 2017?

Remember the Tax Cuts and Jobs Act (TCJA) of 2017? It nearly doubled the standard deduction, which is great for simplifying taxes but complicated things for deducting charitable contributions.

Standard Deduction for 2024:

  • $14,600 for single filers
  • $29,200 for married couples filing jointly

Note that there is an additional standard deduction of $1,950 for single filers and
1,550 for married filing jointly for those 65 and older.

Here’s the catch: if your total itemized deductions (like mortgage interest, state and local taxes, and charitable donations) don’t exceed the standard deduction, you can’t claim a federal tax break for your contributions.

And Even If You Itemize…

The IRS limits how much of your Adjusted Gross Income (AGI) you can deduct:

  • Cash Donations: Deductible up to 60% of your AGI.
  • Appreciated Securities: Deductible up to 30% of your AGI.

Donations exceeding these limits can carry over for up to five years, but the rules are precise and unforgiving.

The Bunching Strategy: A Smart Workaround

Here’s a clever approach: bunching. Instead of donating $5,000 annually, donate $15,000 every three years.

  • In “bunching” years, itemize to claim the deduction.
  • In off-years, take the standard deduction.

Donor-advised funds (DAFs) make this even easier. Contribute a lump sum to a DAF in your itemizing year for the tax break, then distribute donations to your favorite charities over time.

Donor-Advised Funds (DAFs): A Strategic Giving Tool

Think of a DAF as your personal charitable giving account. You can contribute funds—or better yet, appreciated securities that you’ve held for more than one year.

Why the “long-term” holding period? It’s key to maximizing your tax benefits. When you donate appreciated securities that you’ve held for over a year, you avoid capital gains taxes and get a deduction for the full fair market value of the asset.

Example:
Let’s say you bought stock for $5,000, and now it’s worth $15,000. By donating it to a DAF:

  • You bypass capital gains tax on the $10,000 growth.
  • You get a charitable deduction for the full $15,000.

But here’s the golden rule: if the stock was held for less than one year, the deduction is limited to your cost basis—not its market value. Timing is everything.

Once the funds are in your DAF, you can invest them for growth or distribute them over time to your favorite charities. Just remember: don’t let your DAF become a parking lot for charitable dollars. Charities need support now, so make it a habit to grant funds regularly.

Qualified Charitable Distributions (QCDs): A Game-Changer for Retirees

If you’re 70½ or older, QCDs offer a unique advantage. You can donate up to $100,000 directly from your IRA to a charity.

  • QCDs count toward your Required Minimum Distribution (RMD).
  • They don’t increase your taxable income.

This is perfect for retirees who don’t itemize but still want to give strategically.

Non-Deductible Donations

Not all giving qualifies for a tax break.

  • GoFundMe or Crowdfunding: Usually not deductible unless the recipient is a 501(c)(3) nonprofit.
  • Political Donations: Contributions to candidates, PACs, or ballot initiatives are never tax-deductible.

Why Giving Feels Good Beyond the Tax Break

Don’t lose sight of the real reward: the joy of giving. Studies show that charitable acts enhance emotional well-being and deepen community connections. Tax benefits are just the cherry on top.

Final Thoughts on Charitable Giving and Taxes

Charitable giving is about more than tax strategy—it’s about making a real difference. Whether you’re supporting food banks, funding medical research, or championing the arts, every gift matters.

So, give with your heart—and maybe a little strategy, too.

Want to dive deeper into the intricacies of charitable giving? Check out our four-part blog series.

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S5E2: Here’s What Savvy Donors Need to Know About Strategic Charitable Giving

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Strategic Charitable Giving Tips for Savvy Donors

Strategic Charitable Giving Ideas to Maximize Your Tax Savings

Cathy shares her strategic charitable giving tips, from deciding how much to give to maximizing your tax savings.

A lot of my clients are charitably inclined and want to include giving in their financial plan. 

Of course, I thoroughly understand my client’s personal finances. Thus, I can provide specific guidance as to how they should think about giving and how to incorporate it into their financial plan.

However, if you’re listening to this podcast episode because you’re also looking for answers to these questions, I can still offer some nuggets of wisdom without knowing the details of your financial life.

In this episode, we’re going to talk about:

  • How much to give to charity
  • Which charities to support with your donations
  • Strategic charitable giving methods to maximize your tax savings.

Naturally, everyone’s goals and personal finances are unique. Therefore, it’s best to consult a financial professional if you have specific questions on this topic.

Nevertheless, I hope this episode gives you a framework for how to think about giving, so you can continue to make an impact while also reaping the associated financial benefits.

Episode Highlights

  • [01:36] How much should you give to charity?

  • [03:17] Which charitable organizations should you support with your donations?

  • [06:52] Who can reap the tax benefits of donating to charity?

  • [07:51] How to use “bunching” to increase your tax savings from charitable giving.

  • [10:06] How donor-advised funds (DAFs) can support your strategic charitable giving goals.

  • [13:04] Why donors who have reached RMD age may want to consider making qualified charitable distributions (QCDs).

  • [15:44] The potential advantages and drawbacks of a charitable gift annuity.  

  • [16:46] Why you may want to consider a charitable remainder trust (CRT).

Links Relevant to this Episode

Strategic Charitable Giving Blog Series:

1: How Much Should You Give to Charity?

2: Which Charitable Organizations Should You Donate To?

3: Tax-Smart Ways to Give to Charity (Part 1)

4: Tax-Smart Ways to Give to Charity (Part 2)

Other Helpful Links:

Donor-Advised Fund (DAF) Decision Matrix

Charity Navigator

GuideStar

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Charitable Giving, Part 4: Tax-Smart Ways to Give to Charity (Part 2)

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Tax Efficient Giving Strategies

In my last article, I shared a few charitable giving strategies that can help you be your generous self while at the same time being tax smart. In part four of this four-part series, I continue that theme and offer some final thoughts on tax-efficient giving.

Qualified Charitable Distributions

A Qualified Charitable Distributions (QCD) allows IRA owners above age 70 ½ to transfer up to $100,000 directly to charity each year. One of the benefits of donating via a QCD is that you can give to your favorite charity while potentially reducing your taxable income.

In addition, a QCD can satisfy all or part of your required minimum distribution (RMD) once you reach RMD age. This benefit makes it an especially tax-efficient giving strategy for people who have other income sources and don’t necessarily need their RMD.  

Keep in mind that you must satisfy a few key rules for a QCD to be a non-taxable distribution.

Most importantly, the IRS considers the first dollars out of an IRA to be your RMD until you meet your annual requirement. To get the full tax benefit of a QCD, be sure to donate the funds directly from your IRA to charity before making any other withdrawals from your account.

In addition, your IRA custodian will require you to complete and sign a form that details your QCD intention. Then, the custodian will send a check to the charity of your choice.

In some cases, your custodian may allow you to write checks against your IRA. Just be aware that your checks must clear before year-end, so it pays to plan ahead.

Charitable Gift Annuities

A Charitable Gift Annuity is a tax-efficient giving strategy where an individual makes an irrevocable transfer of money or property to a charity. In return, the charity pays the individual a fixed income for the rest of their life or a specific term. The fixed payment amount is based on several factors, including the donor’s age, the donation amount, and current interest rates.

In addition, the donor receives a tax deduction for the initial donation and potential tax-free income from the annuity payments. When the donor dies, the charity retains the remaining assets for its mission.

Here are some things to keep in mind when donating to a Charitable Gift Annuity:

  • The gift is irrevocable.
  • Annuity payments are fixed and don’t adjust for inflation.
  • The annuity payments may be lower than a comparable annuity that is not charitable.

Charitable Remainder Trusts (CRTs)

A Charitable Remainder Trust (CRT) is a “split interest” giving vehicle that allow donors to contribute assets to a trust and receive a partial tax deduction. The trust’s assets are then divided between a non-charitable beneficiary (who receives a potential income stream for a term of years or life) and one or more charitable beneficiaries (who receive the remainder of the assets).

There are two types of CRTs: Charitable Remainder Annuity Trusts (CRATs) and Charitable Remainder Unitrusts (CRUTs). Each has its own distribution method.

CRTs have several benefits, including the preservation of highly appreciated assets, income tax deductions, and tax exemption on the trust’s investment income. In addition, you can donate a variety of assets to a CRT, including cash, securities, closely held stock, real estate, and other complex assets.

CRTs can also be established by will to provide for heirs with the remainder going to charities of the donor’s choosing.

Final Thoughts on Tax-Efficient Giving Strategies

Qualified Charitable Distributions, Charitable Gift Annuities, and Charitable Remainder Trusts are all potentially tax-efficient giving strategies that can help you achieve your philanthropic goals. Yet they are also complex and may not be right for everyone.

If you’re considering one of these strategies or are looking for more tax-smart giving ideas, be sure to consult an attorney, tax expert, and/or financial planner to determine which strategies make sense for you. In the meantime, please visit our Resources page for more information on this and other financial planning topics.

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Charitable Giving, Part 3: Tax-Smart Ways to Give to Charity (Part 1)

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Tax-Smart Ways to Give to Charity

If you’ve read the first two articles in this blog series, perhaps you’ve put some thought into how much you want to give to charity each year and to whom. In the second half of this series, we’ll discuss tax-smart ways to give to charity. Tax laws can be dense, so bear with me as I explain the strategies as clearly as possible!

The first thing to know about charitable giving and taxes is that you must itemize on Schedule A of Form 1040 to deduct your charitable donations for the year.

Your total itemized deductions must exceed the standard deduction for you to reap the tax benefit of giving to charity. In 2024, the standard deduction is $14,600 for single filers and married couples filing separately, $29,200 for joint filers, and $21,900 for heads of household.

Fortunately, if you typically take the standard deduction and the amount you give to charity each year doesn’t push you over the threshold to itemize, there are strategies you can employ to maximize your tax savings.

To maximize your tax savings, consider the following tax-smart ways to give to charity:

#1: Bunching

Suppose you’re a non-itemizer but get close to the standard deduction because you max out the State and Local Tax (SALT) deduction at $10,000. Then, you may want to consider a strategy referred to as “bunching.”

How Bunching Works

Bunching is a tax-smart way to give to charity where taxpayers combine or “bunch” their charitable donations into one tax year so they can itemize their deductions.  

Suppose a single taxpayer usually gives $3,000 to charity annually. Meanwhile, their other qualifying itemized deductions (such as state and local taxes, mortgage interest, and medical expenses) amount to $10,000 for a total of $13,000 in deductions.

Thus, it would make sense for this taxpayer to take the standard deduction of $13,850 and not itemize. But let’s say instead they give two years of their charitable budget, or $6,000, in one year.

In this case, they would itemize since their total deductions ($16,000) exceed the standard deduction. If this person is in the 24% tax bracket, their tax savings from charitable donations would be $516 for the year.

This strategy or something similar can be repeated over time, creating multi-year tax savings.

#2: Donor-Advised Funds as a Tax-Smart Way to Give to Charity

In the above example, we assumed the taxpayer wrote a total of $6,000 in checks and mailed them to their preferred charities in one year. Then, they skipped donating to charity in year two.

But there are other tax-smart ways to give to charity that can be even more financially advantageous than bunching and allow for giving each year. One example is to utilize a donor-advised fund (DAF).  

How DAFs Work

A DAF is a registered 501(c)(3) organization that can accept cash donations, appreciated securities, and other non-cash assets. Thus, if you hold highly appreciated securities in a taxable investment account, you may benefit greatly from donating to a DAF.

Here’s why. Suppose instead of writing checks for $6,000 to various charities, the same taxpayer in the example above transfers $12,000 worth of Apple (AAPL) stock with a cost basis of $35/share into a DAF. The stock is worth $160/share on the day of the donation.

The taxpayer can take a tax deduction of $12,000 (the current market value of the shares they donate) on that year’s tax return. They also avoid paying the capital gains taxes they would have incurred by selling the stock outright. This amounts to a savings of over $1,400 ($9,375 gain x 15% long-term capital gains tax rate).

Once they donate their shares to a DAF, the fund sponsor can sell the shares tax-free. The taxpayer can then invest the proceeds within the DAF and let the funds grow tax-free over time. In addition, they can designate which charities they want to receive grants from the DAF going forward.

Like bunching, donating to a DAF allows you to take a potentially large tax deduction in the year you make the donation. Yet unlike bunching, you don’t have to decide which charities to donate to right away. Instead, you can donate your $3,000 as planned each year from funds in your DAF.

Key Advantages of DAFs

  • Flexibility: Donors can recommend distributions to multiple charities over time without having to manage individual grants to each organization.
  • Tax benefits: Donors can claim an immediate tax deduction for the full amount of their donation, subject to certain limitations.
  • Investment management: DAFs typically offer a range of investment options and professional management services to help grow the value of the donations.
  • Privacy: Donors can choose to remain anonymous when making recommendations for grants, if desired.
  • Legacy: DAFs can provide a way for donors to involve their family in philanthropy and pass down charitable values and traditions to future generations.

Limitations of DAFs

Keep in mind that DAFs are not free. According to a 2021 study by National Philanthropic Trust, the average total fee for DAFs was 0.96% of assets per year. This fee includes administrative fees, investment management fees, and any other fees the DAF provider charges.

In addition, DAFs come with a number of rules, including minimum balance requirements, minimum grant requirements, deadlines, and grant approvals.

Many DAF providers require a minimum initial contribution ranging from $1,000 to as much as $25,000. Once you establish the fund, there’s typically a minimum balance requirement between $5,000 and $25,000. If you fail to meet these minimums, the provider may change additional fees or penalties.

In addition, some DAF providers may have minimum grant requirements ranging from $50 to $250 or more. And because most people actively grant at the end of the year, there may be deadlines for making grants to ensure timely processing.

Lastly, DAF providers must approve grants before disbursement to ensure the recipient is an eligible charitable organization and that the grant doesn’t violate IRS rules or regulations. However, disapproval of a grant is rare.

Despite these limitations, the potential benefits make DAFs a tax-smart way to give to charity worth considering in many cases.

tax-smart ways to give to charity

Popular DAF Providers

While there are many donor-advised funds (DAFs) in the United States, the most popular providers tend to be large financial institutions and nonprofit organizations. Examples include:

  1. Fidelity Charitable: Fidelity Charitable is the largest DAF provider in the US, with over $35 billion in assets and more than 200,000 donor-advised funds.
  2. Schwab Charitable: Schwab Charitable is the second-largest DAF provider in the US, with over $20 billion in assets and more than 180,000 donor-advised funds.
  3. Vanguard Charitable: Vanguard Charitable is a DAF provider affiliated with the investment firm Vanguard, with over $14 billion in assets and more than 80,000 donor-advised funds.
  4. National Philanthropic Trust: National Philanthropic Trust is a nonprofit organization that offers DAFs and other philanthropic services, with over $8 billion in assets and more than 18,000 donor-advised funds.
  5. Silicon Valley Community Foundation: Silicon Valley Community Foundation is a community foundation that offers DAFs and other charitable services to donors in the Silicon Valley region and beyond, with over $13 billion in assets and more than 4,000 donor-advised funds.
  6. DonorsTrust: DonorsTrust is a nonprofit organization that offers DAFs and other philanthropic services to donors who prioritize limited government, personal responsibility, and free enterprise.

It’s worth noting that there are many other DAF providers in the US, and your choice of provider will depend on your specific philanthropic goals and financial situation. You must do your due diligence to understand the fees, rules, and requirements if you’re considering this tax-smart way to give to charity.

Next: Tax-Smart Ways to Give to Charity Part 2

Hopefully you now have a better understanding of why bunching and DAFs can be tax-smart ways to give to charity. In the final article of this blog series, I’ll share a few more giving strategies that can help you maximize your impact and tax savings.

In the meantime, please visit our Resources page for more information on this topic and beyond.

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Charitable Giving, Part 2: Which Charitable Organizations Should You Donate To?

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Which Charitable Organizations to Donate To

This article is part two in a four-part blog series focused on charitable giving and will address the question: Which charitable organizations should you donate to?

Once you’ve decided how much money to give to charity each year, you can focus on the recipients. According to Giving USA Foundation, the types of charities that tend to receive the most donations are:

  • Religious organizations
  • Educational institutions
  • Human services such as food banks, disaster relief organizations, and homeless shelters
  • Health-related charities such as hospitals and medical research centers
  • Arts and culture charities such as museums, orchestras, or theatre groups

Many people tend to respond to end-of-year donation solicitations they receive by email or mail and give to the same organizations every year. But if you want to be more proactive about your giving, spend some time thinking about the issues or causes you care about and find the organizations that impact those issues or causes most.

Smaller organizations may have a greater need for your dollars than larger organizations. As such, you may want to take advantage of opportunities to give to local organizations, such as theatre or educational groups.

For example, I donate to a local organization called Foodwise, whose mission is “to grow thriving communities through the power and joy of local food.” Not only do I admire their mission, but I was also previously a board member and get a lot of pleasure from attending their events.

Another example is a client of mine who donates to a swim club she belongs to that’s organized as a 501(c)(3) organization. The swim club was renovating its clubhouse, so she donated dollars specifically to help get this project completed. Another client gives to a hiking club because she’s an avid hiker. 

A Word About 501(c)(3) Organizations When Deciding Which Charitable Organizations to Donate To

Suppose you’re eligible for tax deductions for charitable giving. (Ordinally, you must itemize deductions on Schedule A of your Federal Tax return to receive a tax benefit.) In that case, you should ensure that the organization you donate to is a 501(c)(3) organization.

A 501(c)(3) organization is a tax-exempt nonprofit in the U.S. that must operate exclusively for religious, charitable, scientific, literary, or educational purposes. It addition, the organization must not engage in political or lobbying activities or provide private benefits to any individual or group.

It’s also important to note that if you contribute money through crowdfunding platforms such as GoFundMe, Kickstarter, or Indiegogo, these donations are typically not tax deductible. That’s because the individual fundraising campaigns aren’t tax-exempt organizations. 

Investigating the Charitable Organizations You Donate To

There are several ways to investigate charities to ensure they’re using your charitable donations properly.

One well known charity evaluation organization is Charity Navigator, which provides ratings and financial information on thousands of nonprofits and assigns a rating based on their performance.

Another is GuideStar, which allows you to search for nonprofits by location, mission, or types of work. 

How Many Organizations Should You Donate To?

Lastly, many clients ask me if it’s better to give a large amount of money to one organization or spread their donations among several organizations. I’ve found that this is a personal decision.

Some people care about so many things that they want to spread their money widely. Meanwhile, others prefer to have a more significant impact on just a couple of organizations.

One thing I know for sure: try and give at times other than just the end of the year. The charities will appreciate it, plus you won’t get that anxious feeling that you haven’t done enough on December 31. In addition, if you write checks or take advantage of Qualified Charitable Distributions (QCDs), you’re more likely to meet the deadline to get a tax deduction in the year you donate.

Next: Giving Strategically

The first half of this blog series has focused on how much to give and which organizations to donate to. In part three, we’re going to explore various ways to give strategically, so you can make more of an impact with your donations while enjoying the associated tax benefits.

In the meantime, please visit our resources page for additional details on this topic, and stay tuned for more.

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Charitable Giving, Part 1: How Much Should You Give to Charity?

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How Much to Give to Charity

This article is the first in a four-part blog series focused on charitable giving and will address the question: How much should you give to charity?

There’s a great need for charitable donations from private sources these days, and with those donations, the world can be a better place. If you have a desire to donate money but aren’t sure how much, to whom, when, and how to benefit from applicable tax laws, this blog series is for you.

How Much to Give to Charity Each Year

As a financial planner, clients often ask me for my recommendation on how much they should donate to charities each year. Because I understand my clients’ financial situation thoroughly, this is not an unusual question. I can provide a suggestion based on their cash flow or tax situation.

But with something as personal and individual as charitable giving, I prefer they determine the amount themselves.

What I’ve found helpful in guiding clients is sharing statistics on how much others give to charity. And as it turns out, there’s a psychological explanation as to why this is helpful.

It’s called “informational social influence,” and it occurs when people do not know the correct (or best) action to take. Instead, they look to the behavior of others as an important source of information and act accordingly.

How Much Do Others Give to Charity?

Americans are charitable, donating hundreds of billions of dollars annually to needy organizations. Although there are significant differences in how much Americans give, higher-income households tend to give a higher proportion of their income to charity than lower-income households (unsurprisingly). However, demographic factors, such as age, education, race, and geography, also come into play.

According to data from Giving USA Foundation, the average individual donation among all income levels in 2020 was 2.5% of income. But individual households earning over $200,000 per year gave a more significant percentage—on average, 4.5%.

According to the same report, households in the Northeast and Upper Midwest gave, on average, 3% to 4% of their income to charity. Meanwhile, households on the West Coast gave approximately 1% to 2% of their income to charity.

Of course, these are averages, and the actual percentages of income people in these regions donate depend upon many factors.

How Tax Deductions Impact Charitable Giving

Once I become familiar with my clients’ charitable giving goals, I include the discussion of “how much” in my annual tax planning meetings.

Why? Because the tax code provides incentives for individuals to make charitable donations by allowing them to deduct these gifts from their taxable income. Indeed, if you’re charitably inclined, you may be able to meaningfully reduce your tax burden each year.

Of course, there are rules and guidelines as to who can deduct such donations and to what extent. I will expand on these nuances later in this blog series.

In the meantime, I hope you find this information useful in determining how much you’d like to give to charity each year. Please check out our other resources for additional details on this topic and stay tuned for more.

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Strategic Charitable Giving: How to Make an Impact with Your Donations While Minimizing Your Tax Bill

Charitable Giving, Tax Planning / /
Strategic Charitable Giving

Americans are some of the most generous people in the world. In 2021, Americans gave over $484 billion to charity, according to Giving USA’s 2021 Annual Report. More impressive is that individuals represent 67% of total giving, giving nearly $327 billion in 2021.

There are many reasons to give to charity, from feeling good to creating a legacy. Yet charitable giving can also be important from a financial planning perspective.

In this article, I’m sharing three charitable giving strategies to help you minimize your year-end tax bill.

Charitable Giving and Your Taxes

First, let’s review how charitable giving impacts your taxes.

Currently, taxpayers who itemize deductions can give up to 60% of their Adjusted Gross Income (AGI) to public charities, including donor-advised funds, and deduct the amount donated on that year’s tax return.

You can also deduct up to 30% of your AGI for donations of non-cash assets. In addition, you can carry over charitable contributions that exceed these limits in up to five subsequent tax years.

You need to know your marginal tax rate to calculate your potential tax savings. Your marginal tax rate is the amount of additional tax you pay for every additional dollar earned as income. So if your marginal tax rate is 28% and you itemize, you’ll save roughly 28 cents for every dollar you give to charity.

How to Make a Bigger Tax Impact With Your Giving

Yes, you can write checks to your favorite charities throughout the year, and while your donations may be generous, this approach to giving isn’t the most tax-efficient. Here are some ways to give that are:

#1: Donor-Advised Funds

One of the most efficient ways individuals can donate to charity is through a donor-advised fund (DAF). A DAF is a registered 501(c)(3) organization that can accept cash donations, appreciated securities, and other non-cash assets.

One of the advantages of a DAF is that you can take a taxable deduction in the year you contribute to it, even if you haven’t decided which charities to support. You can then invest and grow your funds tax-free within your DAF until you decide how to distribute them.

And, even better than donating cash, you can donate non-cash assets like highly appreciated stock to a DAF and avoid paying the capital gains tax. This strategy can also help you diversify your investment portfolio without triggering an unpleasant tax bill. Plus, you can take an immediate deduction for the full value of the donation (subject to IRS limits).

#2: Bunching Charitable Donations

Bunching your charitable donations can be beneficial if your total allowable itemized deductions are just under the standard deduction. In 2022, the standard deduction for single taxpayers is $12,950 and $25,900 for married couples.

Example:

Let’s say you give $3000 a year to charity, and it doesn’t get you over the standard deduction amount. However, you could go over the standard deduction if you “bunched” your charitable contributions into one year. For example, in 2022, if you gave $9000 instead of $3000 you could itemize deductions and save tax dollars. Then, you would skip donating in the next two years and go back to the standard deduction. Then, in the third year, you would donate $9000 again.

The result will be more significant tax savings over multiple-year timeframes.

#3: Qualified Charitable Contributions

If you’re age 72 or older and have a traditional IRA, the IRS requires you to take a minimum distribution (RMD) from your account each year. In most cases, RMDs are taxable at your ordinary income tax rate. There’s also a steep penalty for not taking your RMD before the deadline.

Meanwhile, if you have other sources of income like Social Security benefits and possibly a pension, your RMD can push you into a higher tax bracket. That means you may pay more taxes than you would otherwise, even if you don’t need the extra income.

The good news is you can donate your RMD by making a Qualified Charitable Distribution (QCD). A QCD allows IRA owners to transfer up to $100,000 directly to charity each year and avoid taxation on the amount.

A QCD can satisfy all or part of your RMD, depending on your income needs. You can also donate more than your RMD, so long as you stay below the $100,000 limit. This strategy can be helpful if you want to reduce your IRA balance and RMDs in future years.

It’s important to note that the IRS considers the first dollars from an IRA to be your RMD until you take the total amount. So, make your QCD before you take any other withdrawals from your account if you want to realize the full tax benefit of this charitable giving strategy.

A Trusted Financial Advisor Can Help You Incorporate Charitable Giving Strategies into Your Financial Plan

Of course, this is not a comprehensive list of charitable giving strategies that can help you make a bigger impact with your donations while lowering your tax bill. Other giving and tax planning strategies may be more appropriate depending on your circumstances and goals.

A trusted advisor like Curtis Financial Planning can help you incorporate giving strategies into your financial plan, so you don’t miss out on valuable tax benefits. Please start here to learn more about how we help our clients and the other services we provide.

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Strategic Philanthropy: How to Feel Good About Your Giving

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Does this sound familiar? December rolls around and your mailbox is full of solicitations from charities and non-profit organizations that need your money. You get busy with the holidays—parties, family, travel—and on December 31, you realize that you haven’t made any donations. You kick yourself but realize there is no way you’re going to get to it, and you resolve to be more proactive about your giving next year. Or, you scramble to write a bunch of checks, stuff them in their envelopes and drop them in the mailbox, hoping you didn’t forget anyone.

You haven’t kept track of what you might have given these organizations and others during the year. You put it out of your mind until taxes are due and you are compelled to make the calculations in order to take advantage of the tax deduction. As you look over your list of donations, some of you may be proud of what you see—you’re happy with both the level of giving and who you chose to give money too. On the other hand, some of you are horrified that you gave too little or too much.

There is a better way.

Why not be more strategic about your charitable giving? Here’s how:

  • Early in the year, identify charities and non-profits that do things you care about. Think about your values and ideals and find organizations that support them.
  • Consider your charitable giving as an expense just as you would any other discretionary expense, like travel, dining out or entertainment. Start with how much you would like to give annually, and then determine whether you can afford it. Realize that you may have to cut back on another expense to meet your charitable goal.
  • Take your budgeted amount and divide it amongst your chosen organizations.
  • Schedule your donations to fit optimally with your cash flow.

You may realize in the process that you can’t afford to give as much as you would like. This gives you an opportunity to find other ways to help: by volunteering, donating goods or helping to spread that word about the cause. Either way, you will have a strategic giving plan that you can feel good about.

If you’re stumped on the first step (identifying organizations to give your money or time too) here are some online tools you can turn to:

Charitynavigator.org: is an independent charity finder that has some interesting features like top 10 lists to help you narrow your search.

Justgive.org: Type your zip code in the “act locally” search feature and find organizations near you.

Charitywatch.org/toprated.html: This website provides a list of top-rated charities.

Happy giving!

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