Strategies to Consider
It can be a very rewarding experience when you donate to charity. You can feel good about supporting charitable organizations that have missions which are close to your heart while also enjoying tax benefits when you follow rules for giving. If you are considering making donations, there are several ways you can build charitable giving into your wealth management plan.
Direct Contributions
This can be the easiest way to give. You can write a check, use a credit card, give cash, or use a service like Venmo or Zelle to donate directly to your selected charity. You can also give appreciated stock by transferring shares directly to a brokerage account held by the charity.
Appreciated Stock Through Donor-Advised Funds
A donor-advised fund is a private fund that is administered by a third party for the purpose of making charitable gifts. Appreciated securities held longer than one year are typically contributed. However, other assets such as fine art or certain business interests can also be contributed. Some donor-advised funds have a minimum contribution amount, and the fund may charge fees to cover its costs, but one big advantage of this approach is that you can make a donation to the fund and get an immediate tax deduction for the fair market value (FMV) of the gift. Later, you can decide where you want your money to go, even spreading out distributions over many years.
Distributions can be made to multiple charities. Once you choose to give a specified amount to a particular charity, the fund will verify that the organization is eligible to receive tax-deductible contributions. When your grant is approved, the money goes to the charity with an indication that it was made on your behalf. Alternately, you can request that your gift be made anonymously.
Here is an example of giving appreciated stock to a charity, either directly or through a donor-advised fund:
- You purchased 100 shares of Netflix.com stock in May 2022, for $200/share, for a total purchase of $20,000.
- In May 2025, Netflix.com is worth $1,200/share, for a fair market value of $120,000.
- You now have a $100,000 long term capital gain which, if the stock is sold, has approximately a $20,000 tax liability (assuming a 20% capital gain tax rate).
- If you donate the shares to a charity or donor-advised fund, the charity will receive the entire $120,000, and no tax is due. In this example, you have saved the $20,000 capital gains tax and you have received a charitable deduction that may save you additional taxes.
Charitable Distributions from IRAs
Individuals over age 70 ½ can make charitable distributions directly from their IRAs. The IRA owner can instruct the financial institution to send a distribution directly to a qualified charity. Legislation has changed whereby the required minimum distribution is now 73 and will eventually be age 75. This can satisfy all or part of the individual’s required minimum distribution (RMD) for the year. So, you can start making charitable contributions from your IRA over age 70 1/2, but RMDs can be reduced by charitable giving, at, or after, age 73. This distribution is not included in the taxable income of the IRA owner and is not a charitable contribution. There is an annual limit of $108,000 per person in 2025. This amount is indexed annually for inflation.
Charitable Trusts
Charitable gifts can be made through trusts. There are two main types of charitable trusts to consider – the charitable remainder trust (CRT) and the charitable lead trust (CLT). Both a CRT and a CLT require you to establish a trust and transfer assets into the trust. These assets could be cash or appreciated securities held longer than one year.
- Charitable remainder trust – You get a current tax deduction when assets are place in the trust based on the projected value of that remainder. During the trust term, you (or another beneficiary or beneficiaries you specify) receive regular payments from the trust. The CRT may last for a term of specified years or your lifetime, depending on how you establish the trust. When the trust ends, the remaining assets from your contribution (the remainder) go to the charity.
- Charitable lead trust – You get a current tax deduction when assets are placed in the trust based on the projected value of the income stream to the charity. During the term of the trust, annual payments go to the specified charity. The remainder at the end of the trust term goes to you or the beneficiaries you designated. This is the opposite of a CRT.
Deducting Charitable Contributions from Taxes
In order to claim a tax deduction for donations to charity, you need to itemize your deductions instead of taking the standard deduction. Generally, you can deduct up to 60% of your AGI when making cash contributions and up to 30% of your AGI when donating appreciated securities held longer than one year. If donations exceed the deductible limits in a given year, you can carry over the excess and deduct it for up to 5 years following the gift. Tax policy around charitable donations is ever evolving and future legislation may impact the tax strategy, but we are always here to help.
Naming a Charity as a Beneficiary of an IRA
Once you have considered the needs of your loved ones, you may wish to leave an IRA to a charity. A charity will not pay income tax on post-death distributions and your estate will generally qualify to receive an estate tax charitable deduction. You may wish to split an IRA, to establish a new IRA with a specific dollar amount that you are comfortable donating to charity by naming the charity as beneficiary and naming family members as beneficiaries to your other IRAs and retirement accounts.
Since there are many variables to consider, it can be beneficial to speak with your financial advisor and your accountant so that they can help you to create a charitable giving strategy that is right for you. It you would like to learn more, please contact us.
