Charitable giving not only improves the lives of others but has been shown to increase happiness more than personal spending on oneself¹. Additionally, improved happiness and health have been linked to reduced rates of stress and lower blood pressure². To make your giving the most thoughtful, ask yourself these three questions.
Which Charity? We recommend finding a charity that aligns with your values. Begin by searching for charities that help causes that are important to you. Searching on websites like candid.org, givewell.org, and greatnonprofits.org can provide details about how the charity uses the donations. After finding a few charities that inspire you, we recommend scheduling on-site visits to your top charities and interviewing managers involved with the charity before making any significant gift. If time allows, volunteering is a great way to get to know the charity and to see firsthand how they run their business and whether they accomplish their stated goals. You might ask your children and grandchildren to volunteer with you for a few hours to share the benefits of giving back and creating lasting family memories. Community foundations are another good way to connect to local charities, as the staff can provide further details of charities working for causes you may want to support.
What to Give Considering Taxes? Donations to 501(c)(3) charities result in an itemized deduction, which reduces taxable income for taxpayers that itemize. The standard deduction in 2025 is $15,000 for single filers and $30,000 for married filers which means taxpayers will not itemize their tax deductions and therefore, will benefit from the charitable tax deduction. For charitable donors, the best way to give might be to switch from giving annually to giving every few years. “Bunching” two- or three-years’ worth of charitable donations into one year might result in itemizing deductions in that year while taking advantage of the now higher standard deduction the other years (example of married filers in chart below). Cumulatively, this results in greater tax deductions which translates to tax savings. If you would like to bunch gifts for tax purposes but benefit the charity over time, consider using a donor advised fund (discussed below) which allows you to take the charitable deduction in the year of the gift, but allows you to make distributions to the charities over time.
Most gifts to qualified charities, except for the gift of time, qualify for a deduction for taxpayers who itemize. The most common gifts are cash or check, highly appreciated stock and personal property (including clothes, furniture, books, etc.). But other property such as highly appreciated real estate, cars, old life insurance policies and qualified direct distributions to charity from retirement plans make attractive giving options as well.
Long-term capital gain assets like highly appreciated real estate or company stock held for more than one year are great assets to donate because not only do you get the benefit of a charitable tax deduction, but you also avoid paying tax on the capital gain – the difference between your cost basis and the current market value. Many business owners about to sell their company donate a portion of their company stock to charity before entering into a letter of intent about the potential sale. When structured properly, the business owner may take an income tax deduction [hopefully in the same calendar year when adjusted gross income (AGI) is high] of the fair market value of his or her company stock donated without having to pay tax on the capital gain. Note that if you give a large donation of long-term capital gain assets to qualified public charities, the amount of the income tax deduction is the fair market value of the asset but is limited to 30% of your AGI. A special election can be made for long-term capital gain assets that would allow you to deduct up to 50% of AGI. However, it would be based on the adjusted cost basis of the asset donated. Any excess amount donated not currently deductible can be carried forward for up to five years.
Large donations to private charities, like private foundations or certain fraternal organizations, are subject to lower limitations. Specifically, for long-term capital gain property, the deduction is the fair market value of the assets donated limited to 20% of your AGI rather than 30%. For short-term capital gain property and cash, the deduction is the adjusted cost basis on the assets donated limited to 30% of AGI rather than 50% or 60% for public charities.
Have You Considered Alternate Ways of Giving? The simplest way to give to charity is by giving directly to the charity. However, putting thought into the way you give can create flexibility. To make a charitable donation with a lasting impact, consider using a donor advised fund (DAF). DAFs allow you to get a charitable tax deduction in the year you make the contribution, while allowing you to stretch the gifts to charities over your lifetime. From your DAF you have the flexibility to set up auto payments to your church or any qualified charity or simply make a gift once a year. You can also give the joy of giving to others by allowing them to direct a donation to a charity of their choice from your DAF. DAFs are inexpensive to set up with a minimum initial contribution of typically $5,000. The contributions can be invested, so even a little can go a long way. Keep in mind, just like any charitable donation, there can be no quid pro quo (the donor cannot receive anything in return for the gifts) and a DAF cannot distribute to a charity to satisfy a personal pledge.
Charitable trusts are another way of giving but are more complex and expensive to set up and maintain. Charitable remainder trusts provide an income stream to the donors for a set term of years or throughout their lifetimes and ultimately leave the remaining assets to a charity. A charitable lead trust pays income to a charity during the donor’s lifetime and the remaining assets are passed to the heirs of the donor. Charitable trusts are not as popular as they once were because there are significant costs to establish and maintain the trust, the tax law change in the late 1990s requiring more to be paid to the charity, and the recent period of low-interest rates yielding minimal income to donors from a CRT.
Everyone Can Give Even if you don’t have highly appreciated stock or much cash to give, making simple gifts of time, old clothes, or weekly donations to your church will still go a long way. We encourage you to enjoy the gift of giving by incorporating philanthropy into your life.
If you could benefit from a conversation with our advisory team, we would be happy to provide a complimentary consultation.
[1] “Money Spent on Others Can Buy Happiness,” The Harvard Gazette, (April, 2008) https://news.harvard.edu/gazette/story/2008/04/money-spent-on-others-can-buy-happiness/
[2] “Social Support and Ambulatory Blood Pressure: An Examination of Both Receiving and Giving,” International Journal of Psychophysiology, (November 2006). http://www.sciencedirect.com/science/article/pii/S0167876006001917
[3] “How to Donate Your Life Insurance Policy to Charity,” Forbes.com, (July 2024). https://www.forbes.com/advisor/life-insurance/donate-to-charity/
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