When implementing your charitable planning, you have many different vehicles and strategies to consider. It is worth your time to fully understand your options as it can generate a lot of tax savings, allowing more of your dollars to reach your charities of choice. As you start thinking about your charitable giving plans for the current year, here are a few ideas that might provide a little more bang for your buck. Keep in mind that many of the suggestions below work even better when combined with each other. 

1. Bunch Several Years of Future Donations Into One Tax Year

The Tax Cuts and Jobs Act (TCJA) that went into effect in 2018 roughly doubled the standardized deduction you can claim on your tax return and put a $10,000 cap on the deduction you could claim for state and local taxes. These changes drastically cut down on the number of people who itemize their tax deductions, thereby greatly increasing the number of people who use the standard deduction instead. This, in turn, has caused many people to no longer receive some tax benefit for their charitable contributions, as you only get a deduction for them if you itemize your deductions. 

A popular strategy that has gained traction to counter this loss is known as charitable bunching. Here’s how it works. If you anticipate that your itemized deductions will be less than your standard deduction, you can bunch several years’ worth of charitable contributions into a single tax year. You would then itemize deductions on your current year’s tax return to maximize the deduction you get for your larger up-front charitable contributions and then go back to taking the standard deduction in future years when you don’t make any charitable contributions.  

Example: You typically donate $10,000 a year to charities. In a given year, you also expect to have $20,000 of other itemized deductions (e.g., mortgage interest and property taxes – note again that property taxes are currently subject to the $10,000 SALT cap discussed above) for a total of $30,000. In 2024, the standard deduction for a married, filing joint couple is $29,200. In this scenario, while your itemized deductions exceed the standard deduction, you effectively would only get credit for $800 of charitable contributions (since you would have been able to take the standard deduction anyway if you had no charitable contributions). 

What if, instead of making $10,000 in charitable contributions over each of the next four years, you accelerated all $40,000 in charitable contributions into this year? Well, your itemized deductions in the current year would now exceed the standard deduction by $30,800, so you would now get a deduction for the full amount of that extra $30,000 of charitable you did this year. Whereas, if you just continued to donate the $10,000 each year over that four-year period, you’d be stuck in the same pattern where you wouldn’t get much or any deduction value from your charitable contributions. 

Note that some of these tax provisions from the TCJA relating to the size of the standard deduction and the cap on the SALT deduction are scheduled to sunset (go away) in 2026. So be sure to confirm the current year’s tax rules before implementing any charitable bunching. 

2. Donate Appreciated Stock Instead of Cash

When it’s time to fund a charitable donation, most people tend to reach for their checkbook (or credit card). While such a cash donation is perfectly fine and can entitle you to an itemized tax deduction (up to 60% of AGI in a given year), it is usually more advantageous to utilize your well-performing stocks instead. The advantage of doing this is you can generally avoid the capital gains tax you would otherwise pay on a sale of the stock (if you’ve held the stock for more than one year) while still claiming a charitable deduction for the full fair market value of the stock (up to 30% of your AGI in a given year). 

Example:  You want to donate $10,000 to your favorite charity. You also own $10,000 of ABC stock that you originally bought for $5,000. Instead of cutting a check for $10,000 to the charity, donate your shares of ABC instead. You could then turn around and deposit that $10,000 check in your brokerage account and rebuy the shares of ABC. This avoids a current capital gains tax and effectively allows you to step up the basis in those shares to the current market value, and thus, your tax bill when you sell those shares in the future will be reduced. 

3. Open a Donor-Advised Fund

The two strategies described above (charitable bunching and donating appreciated stock) sound great in theory but can create other issues when it comes time to implement. For one, you may be thinking to yourself, “If I typically donate $10,000 a year, I don’t want to be forced into donating $40,000 to my charities in one year just for tax reasons.”  Another potential issue is that “I donate to some smaller charities, and they either aren’t set up for me to donate my stock to them directly, or it becomes a hassle to get it done.”  Enter the donor-advised fund to solve these problems while providing many other benefits to help you optimize your charitable planning. 

A donor-advised fund (DAF) is an investment account you can open up to help fund your charitable intent. DAFs can be opened up at your local community foundation (such as the Omaha Community Foundation) or can also be opened up at most major investment custodians (such as Schwab Charitable). You can fund a DAF with either cash or appreciated stock (though for the reasons listed above, appreciated stock is the preferred funding method). The assets you contribute can then be invested further inside the DAF for tax-free growth until you elect to request a grant be made from your DAF to your charity of choice. 

The beauty of using the DAF is that you get the charitable tax deduction in the year you contribute the assets to the DAF (so the actual year in which you later grant the funds out to a charity doesn’t matter). Going back to our prior examples, contributing $40,000 of appreciated stock to your DAF would allow you to bunch this amount into one tax year to maximize your itemized deduction. You would also preserve your ability to then grant $10,000 per year to your charities over the next four years, just as you normally would. This also removes the hassle of donating the stock directly to the charity, as you donate the shares to your DAF instead and later have your DAF make a cash grant to the charity. I believe most people could benefit from using a DAF; think of it as a charitable Swiss Army knife to help implement many of your planning goals through one vehicle.  

DAFs have come under more scrutiny in recent years, and there are currently some proposed IRS regulations being considered that could potentially add more restrictions on their use if ultimately adopted. So be sure to pay attention to any law changes that may become applicable to DAFs down the line. 

4. Make a Qualified Charitable Distribution (QCD) from Your IRA

Under current law, starting at age 73, IRA and other retirement account owners generally must take out required minimum distributions (RMDs) each year. RMDs are subject to ordinary income tax, so not everyone is thrilled with this requirement, particularly if they have other sources of income available to them. RMDs can often have the adverse impact of bumping you into a higher tax bracket, which can negatively affect other aspects of your planning (e.g., the cost of your Medicare benefits). 

One way to potentially limit the tax impact of RMDs is to implement a charitable IRA rollover, also known as a qualified charitable distribution (QCD). Once you reach age 70.5, you are allowed to donate up to $105,000 per year (this is now tied to inflation and up from $100,000 in prior years) from your IRA to charity. Since QCDs go directly to a charity, the donor doesn’t report them as taxable income and thus doesn’t owe any taxes on them, even if they don’t itemize their tax deductions.  

There are a few traps to avoid on QCDs. First, they can only be made from an IRA (not a 401k or other employer plan). Also, you can’t send a QCD to a donor-advised fund or a private foundation. Finally, you need to pay particular attention at tax time to make sure that your QCD is reflected correctly on your tax return. This is because, currently, the tax form 1099-R used by investment custodians to report your IRA distributions does not have a special code to reflect if the distribution was actually a QCD. So, if you don’t give your CPA a heads up about the QCD, you could erroneously end up paying tax on it based on the 1099-R. 

5. Offset Taxes in a High-Income Year

This next suggestion is pretty straightforward, but it is important to note all the same. Consider bumping up your charitable contributions in any year where you expect your income will be higher than normal. Whether because of a larger bonus, deferred compensation, the sale of a property, or the sale of your private business or any other asset, a high-income year is a good time to implement additional charitable planning. This is simply because the value of a charitable deduction is higher in any year when your tax bracket is higher, as you would be lowering the amount of income that is exposed to that higher income tax rate. 

6. Offset Taxes on a Roth IRA Conversion

Roth IRAs are a very popular and powerful planning tool to help grow your wealth over time. Converting assets from a traditional IRA to a Roth IRA can provide for tax-free growth and tax-free withdrawals and also reduce future required minimum distributions (RMDs). The downside is that you have to pay tax on the amount of the conversion in the year you do it. You could consider increasing your charitable contributions in the same year as a Roth conversion as a way to help offset the taxes you would otherwise owe on the conversion. 

7. Name a Charity (or your DAF) as a Traditional Retirement Account Beneficiary

Individuals who inherit traditional IRAs (or 401ks or any other qualified plan) typically will owe income tax when they take out distributions. Further, under current law, most individual beneficiaries are now forced to withdraw the entire inherited IRA within a 10-year period. Under prior law, such beneficiaries were allowed to “stretch” the tax deferral of the inherited IRA over their lifetime. So, naming individuals as beneficiaries on traditional retirement accounts is less favorable from a tax perspective than it used to be.  

Unlike individuals, public charities don’t have to pay taxes on bequeathed assets at the time of withdrawal. In light of all of this, a traditional retirement plan could be a particularly useful asset if you desire to leave some funds to charity at your passing. This could be even more tax-efficient than simply listing out a charity in your will. If you are unsure what charity to list as a beneficiary of your traditional retirement account, you could always list your donor-advised fund. 

It’s OK to Keep it Simple 

The above list of charitable planning ideas is by no means meant to be exhaustive. The options I chose to highlight here tend to be fairly applicable to most people and relatively easy to implement. There are several other charitable vehicles you could consider, including private foundations and different types of charitable trusts, as well as various ways to utilize your private business interests or other complex assets in your planning. Those options, which can be appropriate in the right situation, tend to require a larger dollar commitment upfront and/or a higher level of complexity to implement and administer going forward.  

Talk to Your Advisors 

Any one or more of the strategies outlined above could help you optimize your charitable goals. In many cases, combining several of these strategies together in the same year can be beneficial. At the same time, you may need to make some hard decisions between these various options to decide which is best in any given year (e.g., deciding between utilizing a DAF or a QCD). Whatever your charitable plans may be for the coming year, think about reaching out to your Financial Advisor, CPA, and other members of your advisor team as necessary to determine which strategies may be best for your current situation. 

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