Three Ways to Maximize the Tax Benefits of Charitable Giving

According to Giving USA’s Annual Report on Philanthropy, Americans donated $557.16 billion to charitable causes in 2023—up from $499.3 billion in 2022—demonstrating an ongoing collective commitment across the nation to giving back.¹ 

But we’ve seen time and again that even the most avid donors aren’t always fully leveraging the tax advantages available to them. Being strategic about your philanthropy allows you to take advantage of a true win-win situation: amplifying your impact on the causes that matter most to you while reaping significant tax benefits. 

Let’s take a closer look at three ways to elevate charitable giving beyond simple donations into a powerful tax minimization tool.

1. Increase Your Tax Benefit By Giving Appreciated Stocks

One often overlooked charitable giving strategy involves donating appreciated assets directly to qualified organizations. Instead of selling stocks or other investments and donating the proceeds, consider giving these assets directly to your chosen charity. 

When you donate appreciated assets held for more than a year, two powerful tax benefits come into play: 

• You can deduct the full fair market value of the asset 

• You completely avoid paying capital gains tax on the appreciation 

Imagine you purchased a stock for $5,000, which is now worth $10,000. If you sell the stock and donate the proceeds, you’ll owe capital gains tax on the $5,000 appreciation. Assuming a 20% long-term capital gains rate, that’s $1,000 in taxes. 

But by donating the stock directly: 

• The charity receives the full $10,000 value 

• You get a $10,000 tax deduction 

• You avoid $1,000 in capital gains tax 

• Total tax benefit: potentially over $3,700 for someone in the 37% tax bracket

2. Maximizing Deductions with Donor Advised Funds

Using a “bunching” strategy involves concentrating multiple years of charitable giving into a single tax year (as opposed to making consistent annual donations). This approach helps exceed the standard deduction threshold, increasing tax benefits.  

But leveraging a Donor Advised Fund (DAF) makes bunching even more impactful. A DAF is a fund or account maintained by a charity that allows donors to make contributions and retain advisory privileges.²  Donors can make grants out of the fund to whichever charities they wish to support. 

According to the National Philanthropic Trust, DAF contributions and grants grew by 9% in 2022, with DAF assets reaching $228.89 billion³, an increase in popularity that makes sense when you consider that DAFs allow you to:  

• Make a large contribution in one year for the immediate tax deduction 

• Distribute grants to charities over time at your convenience 

• Invest the funds tax-free while deciding on recipients

3. Make Tax-free IRA distributions with a Qualified Charitable Distribution

Qualified Charitable Distributions (QCDs) offer a unique opportunity to support charitable causes while managing retirement income. Individuals age 70½ or older can donate up to $105,000 annually directly from an IRA to qualified charities. These QCDs count toward your Required Minimum Distribution (RMD), and the distribution isn’t included in your taxable income. 

This strategy reduces adjusted gross income (AGI), which can help: 

• Lower Medicare premiums 

• Reduce the taxation of Social Security benefits 

• Minimize the Net Investment Income Tax 

• Increase deductibility of other itemized deductions 

It’s important to note that only traditional IRAs, inherited IRAs, inactive SEP IRAs, and inactive SIMPLE IRAs qualify for QCDs, which aren’t available from 401(k) plans. 

Putting Your Giving Strategy to Work for You 

Strategic charitable giving isn’t just about tax savings – it’s about creating a lasting legacy while managing your wealth effectively. The key is integrating these strategies into your broader financial plan in a way that aligns with your values and goals. 

For greater detail on the strategies we’ve outlined here, and more options for creating a giving plan that services both your charitable intentions and financial objectives, download a free copy of our complete guide to charitable giving. 

It’s also important to note that the most impactful giving strategies often combine multiple carefully timed and structured approaches to maximize both impact and tax efficiency. Working with a financial advisor who understands the intricacies of charitable giving planning and your personal goals can help you make the most of your philanthropic initiatives. If you’d like to set up some time to talk with our team, you can do so here. 

1 Meeks, M., & Meeks, M. (2024, June 25). Giving USA: U.S. charitable giving totaled $557.16 billion in 2023 | Giving USA. Giving USA | a Public Service Initiative of the Giving Institute. https://givingusa.org/giving-usa-u-s-charitable-giving-totaled-557-16-billion-in-2023/ 

2 Donor-advised funds | Internal Revenue Service. (n.d.). https://www.irs.gov/charities-non-profits/charitable-organizations/donor-advised-funds 

3 National Philanthropic Trust. (2024, November 12). The 2024 DAF Report | NPTrust. NPTrust. https://www.nptrust.org/reports/daf-report/