For many people, giving back is more than just a financial decision—it’s a personal one. It’s about supporting causes close to your heart while being smart about managing your finances. Luckily, there are ways to make your charitable dollars go further by using some strategic, tax-efficient methods. Here’s a look at a few ways to help you make the most of your giving without sacrificing your financial goals.
- Donate Appreciated Assets
If you have appreciated assets like stocks or real estate, donating them directly to charity can be one of the smartest ways to give. When you donate these assets instead of selling them first, you avoid capital gains taxes and receive a charitable deduction for the full market value. This allows the charity to benefit from the entire asset value without tax cuts along the way.
Example: Imagine you bought stock for $20,000 that’s now worth $50,000. If you sell, you’re taxed on the $30,000 gain. By donating the stock directly, you avoid the tax and can claim a deduction for the full $50,000. This simple move means your gift can have a bigger impact.
- Consider a Donor-Advised Fund (DAF)
A donor-advised fund is an excellent way to make a one-time, tax-deductible donation that you can direct to multiple charities over time. This is especially useful in a high-income year when you’d like to capture the tax deduction now but want to spread out your charitable contributions over several years.
Why It Works: Donating to a DAF lets you take a full deduction this year, then support your chosen causes on your timeline. It’s a flexible, tax-smart way to plan your philanthropy.
- Take Advantage of Qualified Charitable Distributions (QCDs) from IRAs
If you’re over 70½, a qualified charitable distribution from your IRA allows you to donate directly to charity, reducing your taxable income. This can also satisfy your required minimum distribution (RMD), making it a useful option for those who want to support a cause while keeping income lower.
Key Advantage: Lowering your adjusted gross income with a QCD can potentially reduce other tax liabilities, such as those on Social Security or Medicare premiums—another win-win for high-net-worth retirees.
- Bundle Contributions to Maximize Deductions
“Bundling” or “bunching” charitable contributions involves concentrating donations in a single tax year. This helps if you’re close to the threshold for itemizing deductions. By combining multiple years’ worth of contributions, you might get a larger deduction one year, then take the standard deduction in other years. A donor-advised fund can be particularly useful for this approach, allowing you to disburse the funds over time.
Why It’s Effective: By bundling contributions, you increase the tax benefit in high-income years without compromising your giving consistency.
- Keep Records of Your Charitable Contributions
No matter which strategy you choose, detailed records are key. The IRS requires documentation for certain contributions, so keeping all receipts and donation confirmations in one place will make tax filing easier.
Choosing the Right Giving Strategy for You
Using tax-efficient strategies for charitable giving can help you make an even bigger impact while maintaining your overall wealth goals. Donor-advised funds, gifts of appreciated securities, and QCDs all provide options for thoughtful and impactful giving that supports your financial plans.
If you’d like to explore how these strategies might fit into your approach to giving, we’re here to help. Let’s work together to create a plan that aligns with your philanthropic vision and financial goals. Reach out to our team to get started.