It goes without saying that charitable donations are a meaningful way to support causes you care about. But understanding how charitable donations affect taxes is a crucial component of having an effective financial plan for you and your loved ones.
By strategically incorporating your philanthropy into your tax planning, you can often times amplify your charitable impact while ensuring your giving aligns with your personal financial goals.
We’d love to tell you there’s a simple, one-size-fits-all donation strategy that works for everyone. But there are many variables that need to be considered when building your plan. Let’s take a look at some of the most important variables that can impact how charitable donations affect taxes.
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Variable #1: Standard Deductions vs. Itemized Deductions
If you’re like nearly 90% of Americans, you probably claim the standard deduction over itemized deductions1 on your form 1040 each year. It’s not only less administrative work. It’s also more challenging to qualify for itemized deductions these days.
That’s thanks to the Tax Cuts and Jobs Act of 2017, which essentially doubled the standard deduction amount for every American overnight2. That makes the threshold quite high: for the 2024 filing year, the standard deduction is $14,600 for single filers and $29,200 for those married filing jointly.
If you are a generous giver but routinely opt for the standard deduction because you don’t quite hit the itemized threshold, it’s actually even MORE important that you develop a strategic giving plan. It may seem counterintuitive but there are ways you can map out your giving to make your donation dollars go farther and claim tax benefits that are rightfully yours along the way.
Additionally, it’s just as important to monitor the tax laws no matter which deduction route you take. The Tax Cuts and Jobs Act is set to expire on December 31, 2025. If it does, we could see the standard deduction revert back to its prior threshold, virtually cutting it in half3. This will require everyone to reexamine and update their donation strategy . Even simple things like delaying a December 2025 gift until January 2026 could make a dramatic impact on your taxes.
Variable #2: The Types of Donations You Make
It’s important to keep in mind that cash is not the only form of donation you can make. There are other charitable giving options at your disposal. But the nature of what you’re donating can trigger different tax rules which can in turn dictate the best giving strategy for you.
As you’re considering how your donations will affect your taxes, first take the time to look at all your assets and consider which of them you’d be willing to donate.
1) Cash Donations
According to U.S. Trust and the Federal Reserve, 86% of charitable donations in the United States are made with cash (e.g., checks and credit cards)4 despite the fact that 89% of Americans’ wealth is held in non-cash assets5. Although cash is the simplest way to give, it’s not always the most strategic.
2) Non-Cash Donations
Donating goods like clothing, furniture, or other tangible property to charity is common. And it’s not always about making a drop-off at Goodwill. Non-cash donations can be quite significant in terms of meaning and value – think donating a vacation home or a business—and can be a strategic way to avoid the taxes that would come if you opted to sell the asset instead. The value of your non-cash deduction is generally the item’s fair market value. For major items like a business or a home, an appraisal process is required.
3) Securities
You can benefit significantly from donating appreciated securities, like stocks, mutual funds, or other investments. Instead of selling the asset and incurring capital gains tax, you can donate it directly to a charity. This allows you to deduct the fair market value of the investment while avoiding capital gains taxes entirely. Learn more how to donate stock to charity here.
Variable #3: Your Adjusted Gross Income (AGI)
As we mentioned above, the amount you can deduct annually is capped based on your adjusted gross income (AGI). In simple terms, your AGI is your total gross income minus specific tax deductions, such as deductible traditional IRA contributions and health savings account contributions.
For cash donations, this limit is generally 60%. For non-cash contributions, the limit is usually lower—30% to 50%, depending on the type of asset and organization you’re giving to. AGI limitations also vary as you get into some of the more strategic tactics we’ll cover shortly.
If your contributions exceed the AGI limits, the IRS does allow you to carryover the unused portion to your tax returns for up to five successive tax years.
Variable #4: Timing
They say timing is everything and that’s especially true when trying to understand how donations impact taxes.
Charitable giving can become especially impactful in years when you’re generating above-average income. For example, if you’re looking to sell a business or anticipate receiving a large bonus, donating a portion of the proceeds can mitigate the tax impact it has on your life.
Your age is also important to consider. If you’re older, retired, and/or thinking about how to optimize your estate, you will likely require a different charitable giving approach than someone with a young family.
Building Your Donation Strategy
Once you’ve examined all variables, it’s time to evaluate how you can channel your gifts in more tax-optimized ways. Here are just a few approaches. It’s important to talk to your financial advisor and determine which tactics are right for you.
1) Charitable Bunching
If your total deductions fluctuate from year to year, consider “bunching” charitable contributions into a single tax year to exceed the standard deduction threshold. For example, you could consolidate two or three years’ worth of donations into one year, enabling you to itemize deductions that year and claim the standard deduction in others.
2) Charitable Gain Harvesting
As we’ve already mentioned, donating appreciated assets—from a vacation home to a share of stocks—can be a powerful one-two punch: you get to support the charities you love while avoiding the capital gains tax you would have paid on the sale of that asset.
It’s always critical to review your non-cash assets with a financial advisor before deciding to donate them. There are many nuanced factors, from the value of the asset to your current tax bracket, that could actually make selling the asset and donating cash from the sale the smarter option.
3) Qualified Charitable Distributions
For individuals aged 70½ and older, qualified charitable distributions allow you to donate up to $108,000 annually directly from your IRA to charity. This strategy is especially valuable for retirees who, once they hit the age of 73, have to take the required minimum distribution each year but want to avoid taxable income on the amount distributed.
If you’re married, your spouse can also make qualified charitable distributions up to the $108,000 limit for a potential combined giving power of $216,000. What’s more, your giving doesn’t have to go to just one place—it can be broken up to into different distributions to different charities.
4) Donor-Advised Funds
Creating a donor-advised fund can be an excellent way to create a long-term plan for your strategic giving.
When you set up a donor-advised fund, you partner with a public charity (usually a community foundation or the charitable arm of a financial services company) to manage and administer your fund. You contribute assets to your fund, receive an immediate tax deduction, and then can recommend distributions to charities over time. This approach allows you to claim the deduction in the year of the contribution while giving you time to decide on the final recipients of your philanthropy.
You can contribute to your donor-advised fund in a lot of different ways: cash, securities, businesses, even your home. Just note that contributions to your donor-advised fund are limited to 60% of your AGI for cash and 30% for non-cash gifts each year. Be sure to read our guide, What is a Donor-Advised Fund?, for a deeper dive on this topic.
5) Establishing a Private Foundation
For high net worth individuals with a long-term philanthropic vision, creating a private foundation may be worth exploring. While this is no small undertaking—you’re essentially establishing a “business” that requires everything from a staff and advisory board to a steady stream of funding—it provides unparalleled control over your charitable contributions and their disbursement.
Finding a Charitable-Minded Financial Advisor
To make sure your donation strategy isn’t leaving any missed opportunities on the table, schedule an intro call with Advent Partners’ Certified Financial Planners®. We specialize in helping charitable-minded savers like you do more good in your world without sacrificing your financial peace of mind. For more advice on how donations affect taxes, check out our free guide now: Charitable Contributions: How to Maximize Your Tax Benefits.
Download Our Free Visual Guide Now Our Common Deductible Charitable Gifts visual guide is the easy way to track your donation options, their AGI limits, and the tax rules you need to remember. |
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