How to give the most bang for your buck.
How to The year is drawing to a close, and you may be considering year-end charitable donations. There are strategic ways to donate to charities that can benefit both the giver and the receiver.
Qualified Charitable Distributions (QCDs)
One common mistake we see in charitable giving is withdrawing money from an IRA and then donating it by writing a personal check. Because the IRA withdrawal is taxable, you end up owing taxes on the money before it reaches the charity, leaving less for the cause you want to support.
A strategy you might consider for maximizing the impact of your donation is utilizing Qualified Charitable Distributions (QCDs). Once you reach 70 and a half years of age, you can donate from an IRA directly to a 501(c)(3) charity or church. The money from your IRA cannot be distributed to you for you to then donate; if it is distributed to you, you have to pay taxes on it. To be a QCD, it must go directly from your IRA to the charity or church. The donation check from your IRA can be mailed to you, but it must be made out to the charity to qualify. Thus, the donation is not taxable to you, and the charity is tax-exempt. Additionally, these donations count toward the Required Minimum Distributions (RMD) that currently begin at age 73.
If you do a QCD, you can still take the standard deduction for that tax year. You may not do a QCD and also claim the charitable deduction for the amount given via QCD when itemizing.
Appreciated Shares
Another strategy to consider when planning your charitable donations is to donate appreciated shares. This includes stock and investment funds in a taxable brokerage account that have unrealized capital gains (gains that have accumulated but have not yet been taxed). You can gift these appreciated assets to anyone, but the tax impact varies. Individuals who receive the shares will owe taxes on the gains if they sell them, whereas charities, as tax-exempt organizations, can sell the shares tax-free.
When you donate appreciated shares, you may be able to claim an itemized charitable deduction of up to 30% of your Adjusted Gross Income (AGI). This is on top of the tax benefit of avoiding capital gains taxes on the appreciation you give away.
However, this approach may not be the right fit for everyone. Whether it makes sense depends on your income, tax bracket, and ability to itemize deductions. It’s also important to note that not all charities (especially smaller organizations) are set up to accept gifts of stock.
If you would typically give cash but are instead giving appreciated shares for the tax benefit, you should consider investing the cash you would have given to “pay yourself back,” so that your generosity does not unintentionally impact your long-term retirement goals.
Donor Advised Funds
A third strategy for charitable donations is through a Donor-Advised Fund (DAF). A DAF is an investment account established specifically for charitable giving purposes. All distributions from DAFs are required to go to qualified 501(c)(3) organizations to avoid taxation and penalties. You can contribute cash or appreciated shares, and the assets in the account grow tax-free if used appropriately.
Contributing to a DAF makes you eligible for an itemized charitable tax deduction in the year you make the contribution, as if you had donated directly to a charity. The contributions are subject to AGI limits, depending on the type of asset given. However, the funds can be distributed to any qualified organization at any time. If you know you are in a high-income year and you are charitably inclined, you may consider putting a few years’ worth of charitable donations into a DAF. This will allow you to take the charitable deduction upfront, while still giving the amounts and at the frequency you desire.
While you can always consolidate several years’ worth of charitable gifts into one year to shift the tax deduction into that tax year, a DAF offers the added benefit of maintaining your preferred giving schedule. For many charities, consistent annual donations can be more helpful for budgeting and cash flow than receiving large, irregular gifts.
Other Charitable Considerations
There are other tax-deductible ways to make a charitable donation. Donors can set up charitable donations through their credit card or via payroll deductions arranged with their employer. These methods offer tax deductions in the current tax year, subject to applicable AGI limits.
If you spend time driving for charitable purposes, such as volunteering or delivering goods, you can deduct mileage at the IRS charitable rate, which is currently 14 cents per mile.
Tax deductions are available for the charitable events you attend. The deductible portion of tickets, auctions, or gala contributions counts as a charitable gift if it exceeds the value received (e.g., dinner, goods, or services).
Non-cash goods and assets can also be donated. Donations of clothing, household goods, vehicles, or other property are deductible if they are in good condition. The donations must be made directly to a qualified charity, with acknowledgment, such as a receipt.
The deadline for charitable gifts is December 31, so you still have time to make a donation. Donations postmarked or charged by December 31 count for that tax year, even if processed later.
Tax Law Changes Affecting Charitable Donations Starting in 2026
It is essential to consider tax laws and gift-giving regulations when planning your donations. The One Big Beautiful Bill Act (OBBBA), signed into law in the summer of 2025, contains provisions that impact charitable donations. Beginning in 2026, non-itemizing taxpayers can take a $1,000 (single) or $2,000 (married) above-the-line charitable deduction on cash donations.*
Also in the OBBBA is a provision adding a floor to charitable contributions. Taxpayers who itemize will not be able to deduct charitable donations equal to the first 0.5% of their Adjusted Gross Income (AGI). For example, an itemizing taxpayer with an AGI of $500,000 donates $10,000 to charity next year. The first 0.5% of that amount ($2,500) is non-deductible, and the individual can only deduct $7,500.
These provisions will not take effect until 2026, but please do not hesitate to reach out if you have any questions.
Planning Your Charitable Donations
We would appreciate the opportunity to sit down with you to discuss the charitable gifting strategies that are best suited for your unique situation. Whether or not the above strategies are in your best interest depends on your individual situation. The above information is provided for informational purposes only and should not be considered advice. Click here to schedule a no-cost consultation with a Fee-only Certified Financial Planning™ Professional.
*This deduction cannot be used for gifts of stock or contributions to donor-advised funds (DAFs) or private non-operating foundations.
