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Charitable contributions can support causes you care about while offering potential tax benefits. Learn about different giving strategies and tax planning considerations.
How to Manage Tax Deductions with Charitable Contributions
Charitable giving is more than just a way to support causes you care about—it can also possibly be part of an effective tax strategy. Whether you donate cash, securities, or other assets, the way you structure your contributions can impact your potential tax deduction.
This guide explores different charitable giving strategies, from basic cash donations to more complex options like donor-advised funds and charitable trusts. With careful planning, you can structure your contributions in a way that aligns with both your philanthropic goals and financial considerations.
Basic Charitable Deduction Strategies
For many, donating cash is the simplest way to give. However, even straightforward contributions come with important considerations.
- Know your deduction limits. Cash donations to qualified charities may be deductible up to 60% of your adjusted gross income (AGI) if you itemize. The IRS offers an online tool to verify a charity’s tax-exempt status.
- Decide whether to itemize. If your total deductions—including charitable gifts—exceed the standard deduction for your filing status, itemizing may potentially allow you to claim a larger deduction.
- Consider "bunching" contributions. Instead of spreading donations evenly across multiple years, some donors consolidate multiple years’ worth of gifts into a single tax year to exceed the standard deduction threshold. This can be effective if done in years when larger taxable income is expected.
- Gift appreciated assets. Consider using appreciated holdings to gift to a donor advised fund to try to reduce capital gains exposure in your investment accounts. Other appreciated complex assets may also be used. Learn more about this below.
- Time your donations wisely. To claim a deduction for a specific year, contributions must be made by December 31. Because processing times can vary, plan ahead if you’re donating assets like stocks or real estate.
- Keep proper records. Substantiation rules depend on the type and size of your donation. Cash gifts require receipts or bank statements, while non-cash contributions often require additional documentation or appraisals.
Advanced Giving Strategies
For high-net-worth individuals and those seeking more control over their charitable impact, structured giving vehicles may provide flexibility, tax benefits, and long-term growth potential.
Donor-Advised Funds (DAFs)
A DAF allows donors to contribute assets, receive an immediate tax deduction (subject to certain limits), and distribute funds to charities over time. Assets in the fund grow tax-free, offering the potential for larger charitable contributions in the future.
Qualified Charitable Distributions (QCDs)
A QCD allows individuals 70½ and older to transfer funds directly from an Individual Retirement Account (IRA) to a qualified charity. These distributions count toward Required Minimum Distributions (RMDs) but are not included in taxable income. Note that the QCD cannot be made to a Donor Advised Fund.
Charitable Trusts
Charitable trusts provide structured ways to support charities while addressing estate planning needs.
- Charitable Remainder Trusts (CRTs): Donors contribute assets to an irrevocable trust, receive income for a set period, and donate the remainder to charity.
- Charitable Lead Trusts (CLTs): The reverse of a CRT, these trusts provide income to a charity for a period of time before transferring the remaining assets to designated beneficiaries.
Private Foundations
For those seeking greater control over charitable giving, a private foundation allows individuals, families, or corporations to create a nonprofit entity to fund specific causes. Contributions to a private foundation are deductible within IRS limits, and the foundation can provide grants or directly manage charitable initiatives.
If you have questions about how to structure your giving, an investment management professional at EP Wealth can help you assess different options in the context of your broader financial picture.
Asset-Based Giving
Donating non-cash assets can provide tax advantages beyond those of cash gifts. In many cases, donors can deduct the asset’s fair market value while avoiding capital gains taxes that would apply if the asset were sold.
Common non-cash donations include:
- Appreciated Securities – Stocks, bonds, and mutual funds.
- Real Estate – Land, homes, and commercial properties.
- Business Interests – Shares in privately held businesses or partnerships.
- Tangible Personal Property – Artwork, jewelry, and collectibles.
- Life Insurance – Policies with a charitable organization named as the beneficiary.
Tax Planning Considerations
Understanding tax rules can help donors plan more effectively:
Special Situations
Some charitable contributions stem from unexpected events, such as disaster relief efforts or environmental conservation.
- Disaster Relief Donations – Contributions to IRS-recognized disaster relief organizations may qualify for tax deductions. Some organizations also accept food, clothing, and supplies, each with specific valuation rules.
- Volunteer Expenses – While time spent volunteering is not tax-deductible, certain out-of-pocket expenses related to charitable work may be.
- Conservation Easements – Landowners who restrict property development to preserve natural resources may be eligible for tax benefits.
- Vehicle Donations – If donating a car, truck, or boat, tax deductions depend on how the charity uses or sells the vehicle.
Making the Most of Your Charitable Giving
Charitable giving is both a way to support meaningful causes and a tool for strategic financial planning. EP Wealth’s tax planning advisors can assist with structuring gifts, assessing tax implications, and helping you integrate philanthropy into your broader financial plan. Find an advisor near you.
DISCLOSURES:
- EP Wealth Advisors, LLC. is registered as an investment advisor with the SEC and only transacts business in states where it is properly registered, or is excluded or exempted from registration requirements. SEC registration does not constitute an endorsement of the firm by the Commission nor does it indicate that the advisor has attained a particular level of skill or ability.
- Request an appointment with an EP Wealth Advisor when you have a minimum of $500,000 in investable assets – which includes qualified retirement plans (IRA, Roth IRA, 401(k), taxable brokerage, cash (savings / checking) and CDs. Investable assets do not include your home, vehicles, or collectibles.
- The need for a tax planning advisor, investment management, or financial planner and/or the type of services required are specific to the uniqueness of each individual’s circumstances. There is no guarantee or warrantee that the services offered by EP Wealth Advisors, LLC will satisfy your specific financial services requirements. Services offered by other advisors may align more to your specific needs.
- Information presented is general in nature and should not be viewed as a comprehensive analysis of the topics discussed. It is intended to serve as a tool containing general information that should assist you in the development of subsequent discussions. Content does not involve the rendering of personalized investment advice nor is it intended to supplement professional individualized advice.
- EP Wealth Advisors (“EPWA”) makes no representations or warranties as to the accuracy, timeliness, suitability, completeness, or relevance of any information presented. All expressions of option are subject to change without notice.
- There is no guarantee or warrantee that a client or prospective client that engages EP Wealth Advisors, LLC in Investment Management services will experience investment success and does not ensure that a client or prospective client will experience a higher level of performance or results. No guaranty or warranty is made that any direct or implied service, offering, report, or analysis represented here will be offered or delivered. The services offered to clients will vary and depend on several factors.
- All investment strategies have the potential for profit or loss. Different types of investments and investment strategies involve varying degrees of risk, and there can be no assurance that any specific investment strategy will be suitable or profitable for a client’s portfolio. The risk of loss can never be eliminated even if working with a professional.
- Laws vary by state. The information presented herein is intended to be general in nature and may not apply to your state of domicile. Please consult local legal counsel to determine the best practices for your state.
- Please consult with a CPA, tax professional, and/or attorney regarding your specific situation before implementing any of the strategies referenced directly or indirectly herein.
