Many people naturally reach for their checkbook or credit card when they want to support a favorite charity, community cause, or place of worship. Giving cash is simple, familiar, and feels direct.
However, writing a check is rarely the most efficient way to give. With a little extra planning, you can significantly increase the impact of your generosity while lowering your tax bill at the same time.
Riley Crosbie shares, “Some of the most valuable planning happens in one-on-one meetings, when we look at a client’s whole picture. A common example is a client writing a check to charity while holding highly appreciated stock. Donating the shares instead is often a better outcome for everyone involved.”
Tax-smart charitable giving is not about finding loopholes or being greedy. It is simply about structuring your donations so that more money goes to the causes you care about and less goes to taxes. Here are four practical ways to make your charitable giving work harder for both you and your community.
1. Donating Appreciated Stock Instead of Cash
If you hold stocks, mutual funds, or exchange-traded funds in a taxable account that have grown in value over the years, donating those shares directly can be a game changer.
When you sell appreciated stock yourself, you owe long-term capital gains taxes on the growth. But when you transfer those shares directly to a qualified charity, two great things happen at once. First, you completely avoid paying capital gains tax on the growth. Second, you can generally claim an itemized tax deduction for the full market value of the shares on the day of the transfer.
For example, imagine you bought stock years ago for ten thousand dollars, and today it is worth thirty thousand dollars. If you sell it to donate the cash, you could owe thousands in capital gains taxes, leaving less for the charity. If you donate the stock directly, the charity gets the full thirty thousand dollars, you pay zero capital gains tax, and you receive a larger charitable deduction. The charity can then sell the stock tax-free because of its nonprofit status.
2. Using Qualified Charitable Distributions from Your IRA
If you are age seventy-and-a-half or older and hold a traditional IRA, you have access to one of the most powerful giving tools available: the Qualified Charitable Distribution, often called a QCD.
A QCD allows you to transfer money directly from your IRA to an eligible charity without that money ever counting as taxable income. This is particularly valuable once you reach the age where you must start taking required minimum distributions. If you do not need those mandatory withdrawals for your daily living expenses, sending them directly to a charity satisfies your distribution requirement while keeping your taxable income lower.
Keeping your adjusted gross income lower can also help prevent you from bumping into higher Medicare premium brackets or paying extra tax on your Social Security benefits. To refresh your understanding of mandatory withdrawals, you can read our beginner's guide to understanding RMDs.
3. Creating a Donor-Advised Fund for Flexible Giving
Sometimes you want an immediate tax deduction in a high-income year, but you prefer to distribute the actual grants to charities slowly over time. That is where a donor-advised fund can help.
Think of a donor-advised fund as a dedicated charitable investment account. You make a contribution of cash, stock, or other assets into the fund and receive an immediate tax deduction for that calendar year. The money inside the account can then be invested to grow tax-free, and you can recommend grants to your favorite charities whenever you are ready, whether that is next month or five years from now.
This strategy is especially helpful during a windfall year, such as selling a business, receiving a bonus, or retiring. It allows you to take a large tax write-off in the year you need it most, while creating a lasting pool of funds for ongoing giving. Setting up a structured giving account can also play a major role if you are looking into tips for building a multi-generational wealth strategy for your family.
4. Bunching Your Charitable Contributions
Standard deduction limits are much higher than they used to be, which means many households take the standard deduction rather than itemizing. As a result, typical annual cash donations might not provide an additional tax break if you do not exceed the standard deduction threshold.
Bunching is a simple strategy where you combine two or three years' worth of planned charitable donations into a single calendar year. In that big giving year, your total itemized deductions exceed the standard deduction threshold, giving you a noticeable tax break. In the alternate years, you simply take the standard deduction.
By grouping your gifts strategically, you get the best of both worlds: a higher deduction in your giving year and the ease of the standard deduction in off years, all while keeping your total financial support for your favorite organizations completely unchanged.
Matching Your Gifts With Your Overall Financial Plan
Charitable giving is a deeply personal expression of your values. But the way you give can have a massive impact on your overall financial health, tax liability, and long-term wealth.
Before making large donations, it is always wise to evaluate which accounts you are pulling from. For example, understanding how different accounts are taxed during pre-retirement planning, such as comparing a Roth IRA vs Traditional IRA: Which One Fits Your Situation?, can help you decide whether cash, appreciated stock, or IRA distributions are the smartest funding source.
At Crosbie Financial, we help individuals and families design giving strategies that maximize generosity while keeping their long-term financial goals securely on track. Reach out to our team today to learn how tax-smart giving can fit seamlessly into your financial plan.
Securities offered through Riley S. Crosbie Advisory, LLC, DBA Crosbie Financial, a SEC Registered Investment Advisor. The information provided in this blog is for educational and informational purposes only and should not be construed as investment advice, an offer, or a solicitation to buy or sell any security or to adopt any investment strategy. Any references to specific securities, companies, or market data are for illustrative purposes only and may not be suitable for all investors. All investments involve risk, including the potential loss of principal, and are not guaranteed unless expressly stated. While the information presented is believed to be reliable, its accuracy or completeness cannot be guaranteed and is subject to change without notice. Past performance is not indicative of future results. Readers should consult with a qualified financial adviser and/or tax professional who understands their personal circumstances before making any financial decisions.