Strategic Giving: Maximizing the Impact of Your Charitable Donations

In 2023, Americans gave around $557.16 billion to charity, averaging about $3,296 per donor. However, for many high-net-worth families, average donations easily exceed tens of thousands annually. If you’re inclined to start giving back—or if you’d like to increase your donations as you head toward retirement—it may be worth implementing a charitable giving strategy into your financial plan.

By taking a proactive and strategic approach to charitable gifting, you can better ensure your donations have an impact on those receiving them. Plus, strategic charitable giving can offer you (or your estate) a tax break, but only if certain conditions are met.

What Is Considered a “Charitable Donation?”

Everyone’s idea of a charitable donation is different. For some, it may mean:

• Tithing to a church or religious organization
• Supporting a local food drive
• Giving spare change to holiday donation drives

For others, donations may happen on a bigger scale, like contributing regularly to a favorite wildlife rescue or charitable organization, or incorporating giving into their spending and saving strategy.

Charitable donations can take many forms, from cash donations to stocks, property, or other assets (including collectibles, clothing, cars, etc.). Beyond writing a check or transferring assets directly to charity, you have options for how and when to donate, which we’ll discuss below.

The Tax Benefits of Charitable Giving

When done strategically, charitable donations benefit both your intended charity and your tax situation.

Ordinary Income Tax
Generally, donations made to a qualified charity (as determined by the IRS) may be deducted from your taxable income. However, to benefit from this, you must itemize your tax deductions instead of taking the standard deduction. With the standard deduction historically high ($14,600 for individuals and $29,200 for joint filers in 2024), some families use “donation bunching” to maximize their tax benefits. This involves combining several years’ worth of charitable donations into a single year to increase itemized deductions and exceed the standard deduction threshold.

Capital Gains Tax
If you sell an appreciated investment or asset, like a stock, you pay capital gains tax on any profit from the sale. Instead, you may consider donating appreciated assets directly to a qualified charity. By doing so, you avoid capital gains tax while maximizing the impact of your donation, creating a win-win situation for you and the recipient charity.

Qualified Charitable Distributions (QCDs) from IRAs

If you are age 70½ or older, you may qualify to make Qualified Charitable Distributions (QCDs) from your IRA, which offers unique tax benefits. A QCD allows you to transfer up to $100,000 adjusted for inflation ($105,000 for 2024) directly from your IRA to a qualified charity without counting the distribution as taxable income. This can be particularly advantageous for those who are required to take Required Minimum Distributions (RMDs), as QCDs can satisfy the RMD requirement while keeping your taxable income lower.

Under new SECURE 2.0 Act rules, QCDs are now indexed for inflation. For 2024, the QCD limit has increased to $105,000. Additionally, up to $53,000 of a QCD can be used as a one-time donation to fund a Charitable Remainder Trust (CRT) or Charitable Gift Annuity (CGA). This option allows you to structure your donation for maximum impact over time. Charles Schwab has a great example of this in action in this article. 

3 Charitable Giving Strategies to Consider

Here are three additional charitable giving strategies that can help you support causes you care about while potentially benefiting your financial plan.

1. Donor-Advised Funds (DAFs)
A DAF is an investment account created specifically for charitable giving, offering several key benefits. You can contribute cash, appreciated stock, and other assets, receiving an immediate tax deduction for your contribution. You then advise your DAF’s sponsoring organization on where, when, and how much to distribute over time. DAFs are useful for donation bundling and streamlining the charitable giving process.

2. Charitable Remainder Trusts (CRTs)
A CRT is an irrevocable trust that can provide income for you or your beneficiaries while also supporting your chosen charity. You contribute assets to the CRT, receive an income stream for a set period, and the remaining assets go to charity afterward. CRTs can be particularly useful for tax planning, as contributions may be partially tax-deductible, and you can choose between a charitable remainder annuity trust (CRAT) or a charitable remainder unitrust (CRUT) structure depending on your giving and income needs.

3. Matching Gifts
Many corporations offer matching gift programs to employees, effectively doubling the impact of their charitable contributions. This is an easy way to enhance the impact of your gifts without additional personal expense. If you’re unsure, check with your human resources department to see if your company offers a matching program.

Planning Your Charitable Giving

One of the most important aspects of planning your charitable giving is determining which organization(s) you’d like to support. As you weigh your options, check the legitimacy and impact of potential charities. Third-party charity evaluators like Charity Navigator and GuideStar provide valuable insights on transparency, mission, and use of funds. You can also confirm a charity’s tax-exempt status on the IRS website to ensure it qualifies for charitable deductions.

Interested in Incorporating Charitable Giving into Your Financial Plan?

Whether you’ve always been charitably inclined or are looking to start achieving your philanthropic goals, having a thoughtful charitable giving strategy in place can make a significant difference in both your impact and your financial outlook. With proactive planning, you can maximize the effectiveness of your donations while potentially saving on taxes.

If you’d like to discuss how charitable giving could be part of your financial plan, reach out to our team to schedule a time to talk.

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