Make Your Philanthropic Efforts Tax Efficient

Most people have charitable causes that hold special meaning for them. Of those people, many who have the ability will provide financial support to help these charities continue doing their important work. And that’s a good thing, because without the support of donors, many charitable organizations could no longer exist today.

There are a number of ways to financially support your favorite charity (or charities), and the most effective method will depend largely on your specific circumstances. For your consideration, here are some strategies for giving wisely and with tax efficiency.

Donating cash

By far, the predominant way individuals get involved in nonprofits is through charitable giving. Perhaps you’ve written a check or participated in a fundraising event like a gala, silent auction or golf outing—these are all great ways to show your support. If you make a cash donation of $250 or more, the qualified recipient charities must issue a written acknowledgement (receipt) that you use to claim your donated amount for income tax purposes. You may also claim a tax deduction for donations if you maintain certain records.¹

One effective way to approach giving cash is to set up recurring donations, say monthly or quarterly. This can help smooth out the cash flow for donor and recipient alike, making both of your budgets easier to predict and manage throughout the year.

Donating securities and other property

Giving property instead of cash, particularly shares of stock that have appreciated in value, is another option. Provided that various IRS rules are met, this strategy can make it possible to avoid the capital gains tax associated with that appreciated value. If you own securities in a taxable account that are worth more today than when you bought them, this is a strategy that can enable you to give a larger gift at a lower cost to you.

It’s also possible to gift tangible assets to charity, such as land, real estate or collectibles, although the tax calculation can be quite a bit more complex. For example, if your goal is to donate an art collection and receive a tax deduction based on the fair market value, there are several IRS rules and regulations to follow.²

Your donation must be “capital gains property,” which means you must have purchased and held the property for at least a year. In addition, the receiving organization must retain your donation for at least three years, and utilize it to fulfill their mission. This makes it tricky to gift things like art. In fact, we’ve seen museums turn down collections because they just don’t have enough storage or display space.

Oh, and if you painted the art yourself, you will only receive a deduction for the cost of the paper and paint—nothing more. In short, donating tangible property is certainly possible, but donating something intangible, like cash or stock, is generally much more straightforward.

Other tax-smart ways to donate

Giving securities isn’t the only way to amplify the tax advantages of charitable giving. Let’s say you’ve had high earnings this year, and want to reduce the amount of income tax you need to pay. One solution is to set up a donor-advised fund (DAF), which is an account that lets you make several years’ worth of charitable donations all at once and claim one big deduction.

Over the following years, you can invest and manage the money inside your DAF and issue donations to charities whenever you wish. You may contribute both cash and securities to a DAF, possibly allowing you to further increase the tax advantages.

Here’s another idea: If you’re aged 70.5 or older, you may be permitted to use a qualified charitable distribution (QCD) to take money from your IRA and give it directly to a registered charity. Doing so can satisfy your required minimum distribution (RMD) and help you avoid taxable income. For 2025, the maximum amount an eligible IRA owner may exclude from their taxable income is $108,000, up from $105,000 in 2024 (to account for inflation). Qualified married couples holding separate IRAs may donate up to $216,000 combined in 2025.³ In the long run, gifting to charity using your IRA is potentially the most tax-efficient way to give.

Donating as part of your estate plan

If you have the desire to create a charitable legacy that extends beyond your lifetime, it’s a good idea to start planning now. You may be able to use life insurance, investments, and tax and legal structures like trusts to maximize the philanthropic impact of your estate.

We recommend working with professionals who understand your goals and can help you weigh options, such as setting up a private foundation or charitable trust, and either naming charities or your DAF as the beneficiaries of your IRA.

Your philanthropic path will likely depend on many factors, including your life experiences, your family values, your financial resources and the needs of your community. A Corient Wealth Advisor can help ensure that your wealth management strategy and estate plan are well aligned to your philanthropic wishes.

¹ https://www.irs.gov/charities-non-profits/charitable-organizations/charitable-contributions-written-acknowledgments
² https://www.irs.gov/publications/p561
³ https://www.irs.gov/newsroom/give-more-tax-free-eligible-ira-owners-can-donate-up-to-105000-to-charity-in-2024

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