Tax Conscious Charitable Giving Strategies

If you are considering generously donating to charity, there may be a smarter, more tax-effective way to do so. This is particularly true if you have substantial unrealized gains on some of your investments or have Required Minimum Distributions (RMDs) from your IRA that you do not need to cover living expenses. Here are some tax conscious gifting strategies that may be worthwhile exploring.

Donor Advised Fund (DAF)

A Donor Advised Fund is a charitable giving account that is established at a public Section 501(c)(3) charity (there are many different options to choose from) that allows individuals or families to make an irrevocable contribution, claim a potential immediate tax deduction, and then recommend grants to their favorite qualified charities over time.

In other words, you donate the money to a charitable giving account, and the assets are then owned by the underlying charitable organization. However, the donor maintains discretion over which organizations to donate the funds to in the future. Quite simply, it is a way to donate funds now, receive a tax deduction, but still maintain advisory control of the funds for future gifting. This is an irrevocable action and cannot be undone, and the funds cannot be used to personally benefit yourself in the future.

The beauty of a DAF is that you can donate a wildly appreciated security that was held in a taxable account and receive a tax deduction for the entire value without otherwise having to realize the gain. Furthermore, the appreciated asset can now be sold inside of the DAF and invested for future growth. Investments held inside of a DAF grow tax free. Many DAF providers offer advisor-managed options above certain minimums.

Many people are donating cash to their favorite charities, not realizing that they could be donating their appreciated stock.

How does the tax deduction work?

• For cash contributions to a DAF, you can generally deduct the full amount of the contribution, up to a limit of 60% of your Adjusted Gross Income (AGI). There is a 5-year carry-forward for unused deductions.
• Gifts of Appreciated securities (one of the most common ways to fund a DAF) receive an immediate tax deduction of up to 30% of adjusted gross income (AGI). Gifts of appreciated securities enjoy a five-year carry-forward deduction on gifts that exceed AGI limits.

Qualified Charitable Distributions (QCD)

For those that are eligible (must be over the age of 70 ½) or are subject to Required Minimum Distributions (RMDs), it may make sense to use a qualified charitable distribution for donation purposes.

A Qualified Charitable Distribution lets you transfer money directly from your IRA to a qualified charity. By doing so, you can avoid paying income tax on the distribution (up to $108,000 in 2025). Funds that are held in a pre-tax account such as a Traditional IRA are typically subject to income tax when distributed.

A QCD is an efficient method of donating to charity and not having the withdrawal count as taxable income. If the money is withdrawn first and then donated, it does not count as a QCD. 

QCDs can also be used to satisfy your required minimum distribution (RMD).

Conclusion

There are many different strategies for maximizing the benefits of gifting to charitable causes. Being educated on the options can have substantial tax savings. For those with substantial assets, there may be better ways of gifting than using cash. 

Always consult with your CPA and Financial Advisor regarding any charitable gifting and tax minimization strategies. 

-Bill Rautiola. RICP ^®, AIF ^®, PPC ^®

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. This information is not intended to be a substitute for specific individualized tax advice. We suggest that you discuss your specific tax issues with a qualified tax advisor.