Contributed by: Lauren Adams, CFA®, CFP®
We all have an interest in making the world a better place for our families and the generations to come. That’s why many of us give money, time, and resources to help support charities we believe in to make a difference for others in need, the towns and cities we live in, and the planet. But what if you could donate to organizations to support their efforts and get a tax deduction while doing it? Well, you can, and the tax code even incentivizes it!
At The Center, one of our favorite ways to improve lives is by helping our clients make a positive impact on the world through what we call “tax-savvy charitable giving.” While many people give charitably by writing a check, digging into their wallets for cash, or putting a donation on their credit cards, we’re here to tell you there’s a better way! We can deploy several key strategies to help our client’s charitable dollars stretch even further while lowering their tax burden.
Strategy #1: Gifting Securities Instead of Cash
Our first strategy deals with taxable assets like the ones in brokerage accounts. Instead of donating cash, donating securities that have appreciated in value—like stocks, ETFs, or mutual funds—could be a better way.
If you’ve been investing for a long time, you likely have shares that have increased in value. Normally, whenever you sell those shares, you pay taxes on the capital gains associated with that growth. But if you give those appreciated shares to charity, you can deduct the fair market value of those shares without paying capital gains taxes. You can even decide to buy those shares right back after you donate them, which raises the cost basis of your holdings and, ultimately, helps lower your future tax bill if and when you decide to sell (lowering your tax burden in retirement when you start drawing on your portfolio).
In addition to being a tax-advantaged way to donate to charity, this strategy can also help if you have a large concentrated stock position—where a considerable percentage of your portfolio is composed of one or a few stocks—to trim that concentration risk without triggering a hefty tax bill.
Again, there are caveats: You need to make sure you’ve held the security for more than a year, and there are IRS limits on how much you can deduct in a given year as a percentage of your overall income. And if the stocks depreciate in value, the tax benefits don’t apply. And make sure to keep your tax preparer in the loop along the way.
Strategy #2: Donating Directly From Your IRA
This strategy involves a concept called the Qualified Charitable Distribution (QCD). How does it work? Instead of taking a distribution from your IRA, paying taxes on the amount withdrawn, and sending that money to your checking account, QCDs allow you to send money directly from your IRA to the charity of your choice. In essence, it’s a transfer of assets from your IRA to one or more qualified nonprofits.
However, there are some caveats: You need to be at least 70.5 years old, and the charity has to be a 501(c)(3), meaning a tax-exempt nonprofit whose earnings support the advancement of its charitable cause. Also, there are limits on how much you can give each year—but that number is relatively high. In case you’re wondering, in 2025, it’s up to $108,000 per person per year.
Usually, distributions from your IRA are taxed when they’re received. But with a QCD, they become tax-free as long as they’re transferred to an eligible nonprofit organization. Giving directly from your IRA results in those dollar amounts not being included in your gross income for that year, which results in a lower tax bill for you. It can also lower the amount you may pay for Medicare premiums and the portion of Social Security taxable to you, depending on your situation and income level.
For those of you who have reached the milestone age, a QCD also counts toward satisfying the distributions you must take each year for your Required Minimum Distribution, the amount the government makes you withdraw from your IRA each year once you hit a certain age (generally, 73-75). This is especially useful if you don’t need your full RMD to live on or plan to give charitably (now you’re doing so in a more tax-efficient manner!).
Strategy #3: Exploring Donor Advised Funds
Let’s start with a quick history lesson. The 2017 Tax Cuts and Jobs Act significantly raised the standard deduction many now enjoy on their tax returns. This means you have to give a lot more to charity than you did in the past to push you above the standard deduction amount to see a reduction in your tax bill for the charitable dollars you donate.
For this reason, we often recommend clients lump or bunch several years of charitable gifts to help push them over that standard deduction amount in one year. This works to a client’s advantage if they’ve had an exceptionally high-income year due to something like selling a business before retirement. That’s when we suggest a Donor Advised Fund or Family Foundation, which is like a charitable investment account where you can donate, get the tax benefit now and then give a gift to the charities you care about later. And guess what? These strategies can be combined, meaning you can decide to gift appreciated securities to one of these special accounts, allowing you to avoid capital gains tax and lump together your gifts to maximize the overall deductions you’re able to recognize over time. For instance, a client in one of their highest income years may decide to bunch 5-10 years of future gifting into a charitable account AND use appreciated securities to do so!
Strategy #4 (and Beyond): Estate Planning Techniques
To further increase our clients’ charitable tax planning, we often collaborate with their estate planning attorneys to shift the beneficiaries of their pre-tax retirement accounts to the charities they would like to support upon their death. That leaves their investment accounts and other after-tax assets to friends and family. Because charities (unlike people) don’t pay income taxes when they are beneficiaries, this strategy could end up saving our clients’ heirs thousands of dollars in future income taxes when they eventually inherit retirement account money.
These are just a few of the strategies we recommend for our clients. But regardless of the strategy employed, one thing is always true for us at The Center: Helping our clients get the most bang for their charitable buck is one of the many reasons why we love what we do!
Lauren Adams, CFA®, CFP®, is a Partner and CERTIFIED FINANCIAL PLANNER™ professional at Center for Financial Planning, Inc.® She works with clients and their families to achieve their financial planning goals.
The foregoing information has been obtained from sources considered to be reliable, but we do not guarantee that it is accurate or complete, it is not a statement of all available data necessary for making an investment decision, and it does not constitute a recommendation. Any opinions are those of Lauren Adams, CFA®, CFP® and not necessarily those of Raymond James. While we are familiar with the tax provisions of the issues presented herein, as Financial Advisors of RJFS, we are not qualified to render advice on tax or legal matters. You should discuss tax or legal matters with the appropriate professional.
Securities offered through Raymond James Financial Services, Inc., member FINRA/SIPC. Investment advisory services are offered through Raymond James Financial Services Advisors, Inc.
Center for Financial Planning, Inc. is not a registered broker/dealer and is independent of Raymond James Financial Services.