Charitable giving plays a meaningful role for many individuals and families. Whether through financial contributions, donated assets, volunteer time, or a mix of these, philanthropy can reflect personal values and help build a lasting legacy. It can also be incorporated into a broader financial strategy, where thoughtful planning may improve tax efficiency and long-term outcomes for both donors and their families.
Recent Tax Law Changes
Recent legislation has reshaped how charitable deductions work. The Tax Cuts and Jobs Act of 2017 increased the standard deduction while limiting many itemized deductions. Subsequent legislation in 2025 further adjusted these rules, particularly around state and local tax (SALT) deductions and charitable contributions.
Under current rules, itemized deductions are generally limited to specific categories such as qualifying medical expenses, mortgage interest (subject to loan limits), capped state and local taxes, and charitable gifts.
More recent updates introduced expanded SALT deduction limits for certain income ranges, along with new rules affecting charitable deductions:
A modest “above-the-line” deduction is available for cash gifts to qualifying public charities, even for those who do not itemize.
Itemized charitable deductions are now subject to a small percentage threshold based on income before they become deductible.
For top income earners, the tax benefit of charitable deductions may be calculated at a slightly reduced marginal rate.
These changes can significantly affect the after-tax value of charitable giving, particularly for those with higher incomes.
Traditional Cash Giving
Many individuals give to charity using cash donations. While this approach is straightforward and still eligible for tax deductions (within applicable limits), it is often not the most tax-efficient strategy.
More Strategic Approaches to Giving
Donating Appreciated Assets
Contributing appreciated investments, such as stocks held for more than one year, can be a highly efficient strategy. Donors may receive a deduction based on the asset’s current market value while avoiding capital gains tax on the appreciation. This approach can be especially useful for portfolios with significant unrealized gains.
If desired, the donor can repurchase the same or similar investment with cash, effectively resetting the cost basis.
Donor-Advised Funds (DAFs)
A donor-advised fund allows individuals to make a charitable contribution, receive an immediate tax deduction, and recommend grants to charities over time. These accounts can accept a wide range of assets and allow funds to be invested and grow tax-free before distribution.
This structure also supports strategies like “bunching,” where multiple years of donations are contributed in a single year to maximize itemized deductions, while grants to charities are distributed gradually.
Qualified Charitable Distributions (QCDs)
Individuals age 70½ or older can transfer funds directly from a traditional IRA to eligible charities. These transfers can satisfy required minimum distributions (if applicable) without being included in taxable income. This strategy can be beneficial regardless of whether the individual itemizes deductions.
Additional Giving Strategies
Charitable Gift Annuities
A charitable gift annuity involves donating assets to a charity in exchange for a fixed income stream for life. The donor may receive a partial tax deduction at the time of the gift, and payments continue for the donor’s lifetime, with the remaining value ultimately benefiting the charity.
Charitable Remainder Trusts (CRTs)
CRTs allow donors to contribute assets into a trust that provides income for a specified period or lifetime. The remaining assets are distributed to designated charities at the end of the term. These trusts can help diversify appreciated assets without immediate tax consequences while generating income and a partial upfront deduction.
Charitable Lead Trusts (CLTs)
A CLT operates in the opposite manner of a CRT. The charity receives income from the trust for a set period, after which the remaining assets pass to beneficiaries, often with potential estate planning advantages.
Estate Planning Considerations
Charitable giving can also be incorporated into an estate plan. This may include naming charitable organizations as beneficiaries of certain assets or accounts. In some cases, directing tax-inefficient assets, such as traditional retirement accounts, to charitable beneficiaries can improve overall tax outcomes for heirs.
Private Foundations
For those seeking greater control and long-term philanthropic involvement, a private foundation may be an option. Foundations allow families to manage charitable activities directly and create a lasting legacy. However, they involve greater administrative responsibilities, regulatory requirements, and costs compared to simpler vehicles like donor-advised funds.
Conclusion
Charitable giving can be a powerful component of a comprehensive financial plan. By carefully selecting the methods and timing of contributions, donors can enhance both their philanthropic impact and tax efficiency. Because tax laws and individual circumstances vary, it is important to evaluate strategies in the context of overall financial goals and consult with appropriate professional advisors. Have any questions, contact us to learn more.
Disclaimer: This material is provided for informational purposes only and should not be considered investment, legal, or tax advice. The information is believed to be reliable but is not guaranteed as to accuracy or completeness. Individuals should consult with qualified professionals before making financial or tax-related decisions.