Year-end deadlines are fast-approaching. You can improve your situation and take control of tax benefits for your generous giving. By embracing a plan with your charitable giving, you can achieve your philanthropic goals while using tax optimization strategies as an added benefit.
Donor-advised-fund (DAF) and “Bunching” contributions by tax year.
If you want your chosen charities to receive a consistent amount each year, consider a Donor-Advised Fund (DAF). Much like a charitable giving “checking account,” you can pre-fund the account, receive deduction benefits that year, and then choose the timing for distributing that money in future years.
You can also invest those funds in stocks or bonds while you are deciding where to distribute funds. A DAF account may help separate the tax benefits of your philanthropy from the decisions about where to give. Any contributions received by December 31, including those that are bunched, are eligible for a 2025 tax deduction.
Pro Tip: If you are capped at $10,000 state & local tax deduction vs. standard deduction: If the standard deduction is $31,500 (2025) then the first $21,500 of charitable giving affords no tax savings each year. For example, if you give $20,000/year to charity annually, then you earn zero tax deduction from your giving. However, if you bunch 2 years of giving into 2025 ($40,000), then you at least get to deduct the amount over $31,500 in 2025, and still disburse the philanthropy to the end-charities over 2025 and 2026. No change to the amount or the charity; just taking a deduction that is otherwise unused.
Unless you are giving a large amount each year, you are taking the standard deduction—and unlikely to get tax benefits. By “bunching” an amount every 3–5 years, you can push deductions over the standard deduction level, then take the standard deduction in the years in between those “bunched” gifts.
Donate Appreciated Securities. Deduct full market value and avoid realizing capital gains.
Whether you are funding a DAF or giving directly to a charity, one key strategy to consider is the use of appreciated assets. Gifting stock instead of cash to fund the DAF can give you the dual benefit of getting the deduction benefit and bypassing capital gains tax on that asset. You can also gift appreciated complex assets such as private investment holdings, real estate, restricted stock, cryptocurrencies, and others.
A DAF strategy requires early planning. Collaborating with your advisor to decide if an asset is eligible and start the proper steps ahead of time. As there are a few limitations, it is also important to consult your tax advisor to help with these considerations. Contributions must be received by December 31 to qualify for charitable deductions on 2025 tax returns, and review and processing times can take several weeks.
Pro Tip: You can also donate cash from the sale of depreciated securities. This is a good strategy to keep in mind if you have securities in your portfolio that have lost value. You can sell those securities at a loss and use tax-loss harvesting to offset capital gains and up to $3,000 of ordinary income (2025). Then you can claim a charitable deduction if you donate cash from the sale proceeds.
Qualified Charitable Distributions. RMDs can be satisfied with direct gifts to charities.
If you are age 73 or older, you may consider Qualified Charitable Distributions (QCDs). Charitable gifting from your IRA counts towards your RMD (Required Minimum Distribution). For example, if your RMD for the year is $50,000 and you give $10,000 by way of the QCD, your taxable distribution on your tax return is only $40,000. This is the equivalent of getting a $10,000 deduction from charitable giving for taxes—and you don’t have to worry about the standard deduction threshold as the amount comes “off the top” of the earnings amount you need to report (and lowers taxable earnings for State returns as well).
As the QCD can help control AGI (“Adjusted Gross Income”), it can also be helpful when navigating the IRMAA (“Income Related Monthly Adjustment Amount”) thresholds that affect the Medicare premiums deducted from your Social Security monthly check. If you are just over the tipping point of having a higher assessment, using a QCD strategy could lower your AGI to avoid this.
Pro Tip: With tax-deferred retirement accounts, such as traditional IRAs, you can use charitable deductions to help offset the tax liability on the amount converted to a Roth IRA. Roth IRAs are tax-free growth, tax-free withdrawals, no annual RMD, and elimination of tax liability for beneficiaries.
It is important to know your options and talk with your advisor about your approach to charitable giving. While these strategies are more complex, the tax savings can be meaningful. Please talk with your investment advisor, legal advisor, and tax advisor to see what works best for you.