top of page
  • Writer's pictureMalissa Marshall, CFP®, MS Tax, EA

Tax-Efficient Charitable Giving Strategies

Updated: Aug 24, 2023

Did you know that 30% of annual charitable donations are made during December – with 10% made during the last three days of the month? This article highlights some interesting statistics – including that women are responsible for 64% of donations.

As part of my role as a financial advisor, I help my clients ensure that their charitable dollars are made in the most tax-efficient manner possible, so that they can stretch those dollars even further. The section below outlines two particular strategies which are simple to implement – one each recommended for retirees and working folk.

Given how busy this season can be, I'll give you the cliff notes version first: if you are retired (and already taking Required Minimum Distributions), the best option would likely be to make Qualified Charitable Distributions (QCDs) directly from your IRA; if you are still working, I recommend contributing appreciated stock, potentially through a Donor Advised Fund (DAF). I'll outline the reasoning and mechanics of each of these options in more detail below.

Why is planning your charitable giving important?

Since the 2017 Tax Cuts and Jobs Act (TCJA) doubled the standard deduction, it’s become that much more difficult to clear the threshold to receive a tax deduction for your charitable donations. While your primary goal with charitable giving is to make a positive impact on the causes you care about, decreasing your tax bill could help you further your impact by freeing up even more funds to donate.

Better than cash: how to give on a tax-efficient basis

There are two relatively simple, tax-efficient ways to make your charitable donations go farther. Determining which option makes more sense for you depends in part to whether you are retired and taking Required Minimum Distributions (RMDs) already, or if you are still working or in early retirement:

  1. If you are already taking RMDs – the best option is likely to make qualified charitable distributions (QCD) directly from your IRA.

  2. If you are still working – the best (and only) option is to donate appreciated stock from a taxable account, potentially to a Donor Advised fund (DAF).

If You Are Already Taking RMDs

A qualified charitable distribution (QCD) is exactly what it sounds like: a distribution made directly from your IRA to a qualified charitable organization. The benefit is that you can exclude the amount of the QCD from your taxable income, unlike other withdrawals. This strategy can be used, for example, to satisfy your required minimum distribution (RMD) for the year, which would otherwise increase your taxable income and various thresholds tied to that; for example, the portion of your social security income that is taxable, or the medical expenses you could deduct.

Many custodians will send you a checkbook specifically for this purpose. However, make sure to keep track of distributions made directly to charity – the custodian will not differentiate when they issue the Form 1099-R tax document, so you will need to provide this information to your tax preparer to ensure you receive the tax benefit.

If You Are Still Working

If you are still working or are not yet required to take RMDs, that option might not give the best tax advantages (or be available, if you are below age 70 1/2). In that case, you would want to consider donating appreciated stock. As you are probably well aware, selling that stock could potentially trigger capital gains tax. However, should you donate appreciated stock held for at least one year, you would receive a charitable deduction for the full fair market value of the shares that you choose to donate, and avoid paying taxes on the capital gain entirely. Compared to cash, this tactic greatly magnifies your ability to give.

In most situations, it is clear which option to select; however, if you could employ either strategy – that’s when you'd want to consult with an experienced professional to help you select the most tax-effective route for your situation.

Intermediate tax planning strategies

"Bunching" Contributions

When you give appreciated stock, the tax effectiveness might still be limited due to the higher standard deduction, in which case you might want to consider “bunching” multiple years' worth of charitable donations into a single year. For example, if you normally give $5,000 each year to charities, it is unlikely that you receive any tax benefit. However, if instead you give $20,000 every four years, you can then exceed the standard deduction in those years and receive a corresponding tax deduction (the actual amount depends on your filing status and other deductions).

Furthermore, you can leverage the tax deduction by bunching your donations in a year that you expect to have a higher taxable income. For example, if you received an exceptionally high bonus, had an exit event from your company, or cashed in a significant number of stock options. Bunching donations is a good strategy in general, but by doing so in a high-income year, you can amplify the effect by offsetting income in higher tax brackets, allowing you to achieve a lower effective income tax rate.

Using a Donor Advised Fund (DAF)

Since most people give annually, the "bunching" strategy can be most effectively combined with a Donor Advised Fund (DAF). A DAF is a charitable account that you can set up with either a financial institution (such as Schwab, Vanguard or Fidelity) or through a community foundation – such as The Vermont Community Foundation. Instead of giving disproportionately large amounts to charities in one year only, you could make a single large donation to a DAF – preferably of appreciated securities, as explained above – and then continue to give a standard annual amount to charities going forward, all while accumulating tax-free income on any account balance.


Year 1 – donate $20,000 appreciated securities (or cash) to a Donor Advised Fund; from the DAF, donate your standard $5,000 to the charities of your choice; receive a deduction for $20,000 (the actual tax impact varies according to your personal situation). For recordkeeping purposes: keep only the confirmation of the transfer of the $20,000 to the Donor Advised Fund.

Years 2-4 – donate $5,000 per year from the DAF to the charities of your choice (although since the account has likely grown in value, depending on how it was invested, you'll likely have even more to donate); receive no further tax deductions. Recordkeeping: N/A – simple.

When should you donate?

Considering that the tax implications of a donation can be substantial, it’s often better to wait until later in the year to make any significant contributions – so now is the perfect time. By waiting, you’ll have a better idea of what your taxable income will be and can make a more informed decision about the best strategy to implement each year.

Year-end donations also allow you to focus your impact by making significant, targeted donations instead of smaller donations throughout the year. From a record-keeping standpoint, making fewer, larger contributions are simpler to track. This is another reason for using a Donor Advised Fund, as you will only need to keep a record of the initial contribution, and not of the subsequent distributions made to charities from the DAF.

How much should you donate?

Although I’ve discussed some tax-efficient donation strategies here, remember that taxes alone shouldn’t drive this decision. Giving is a personal choice and more about your desire to make a difference within your community based on the values that you and your family hold. Finally, don't forget to donate your time to your favorite charitable causes!

Links & Resources

  • Literary Iceland Revels In Its Annual 'Christmas Book Flood' (NPR): Have you heard of Iceland's holiday called Jolabokaflod (the "Christmas Book Flood")? Imagine spending Christmas eve reading books and drinking hot chocolate with your family and friends. Wonderful.

  • Tsundoku: The art of buying books and never reading them (BBC): Tsundoku is the Japanese term for accumulating books which you haven't read, and which accumulate in piles around your home. I can personally attest to how gratifying a practice this is.

  • Hundred Dollar Holiday, by Bill McKibben: This is a thoughtful meditation on the search for more meaningful holiday traditions. I left my original copy in a bookshelf for community readers at Freibad Allenmoos shortly before we left Zürich, but I've now bought 20 copies to share with friends, perhaps to enjoy during Jolabokaflod or to add to their Tsudndoku.


Image by bady abbas

Did you enjoy the blog post?
Sign up for the SW Friday Newsletter!

bottom of page