Wait, is Kristi telling me I shouldn’t donate money to help others? Never! I love charitable gifting and helping clients feel comfortable donating to non-profits.
However, often writing a check is the least beneficial to the donor for tax savings. Consider these methods first:
- Donating Long-Term Appreciated Assets
Gifts of long-term appreciated stocks, bonds, or real estate allow you to avoid paying capital gains tax on the appreciation and enable you to deduct the full fair market value of the asset on your income tax return. This method maximizes your tax deduction while minimizing capital gains taxes.
- Bunching Donations / Donor-Advised Funds (DAFs)
Due to higher standard deductions, many taxpayers don’t itemize each year. By “bunching” multiple years’ worth of donations into one tax year you can surpass the itemization threshold and get the full tax deduction upfront.
Donor-advised funds also allow the donated money to grow tax-free and be granted to charities over time, offering both flexibility and tax benefits.
This strategy will change starting in 2026 due to the new OBBRA tax bill. OBBBA creates a new above-the-line deduction allowing non-itemizers to deduct charitable cash donations up to $1,000 for single filers and $2,000 for married filing jointly.
However, bunching donations could still be effective in years that you have larger-than-usual income (receiving Restricted Stock Units, a large bonus, or big sales commissions).
- Qualified Charitable Distributions (QCDs) from IRAs
Once you attain age 70 ½, for goodness’ sake, gift out of your IRA first!! Making charitable donations directly from a traditional IRA can satisfy required minimum distributions without increasing taxable income.
QCDs are excluded from taxable income (even though they do not qualify for a deduction), reducing your tax burden and possibly Medicare premiums without the need to itemize.
Of course, if you are contributing to your friend’s MS 150 bike ride or someone’s participation in a Polar Plunge (better them than me!), put it on your credit card. But for your 10% annual church tithe, scholarship donations, or other large gifts take the extra time to use the tax breaks available to you.
