Charitable giving strategy

Charitable giving offers significant tax benefits when executed strategically. The 2026 tax landscape introduces major changes under the One Big Beautiful Bill Act (OBBBA), including a new 0.5% AGI floor for charitable deductions, a reinstated non-itemizer deduction, and a 35% deduction cap for the highest bracket.

70 steps across 10 sections

1. 1. Cash Donations

  • Deductible up to 60% of AGI for cash gifts to public charities
  • Deductible up to 30% of AGI for cash gifts to private foundations
  • Excess contributions carry forward for up to 5 years
  • Must exceed the new 0.5% AGI floor in 2026 to be deductible (for itemizers)

2. 2. Appreciated Securities (Stocks, Mutual Funds, ETFs)

  • Deductible up to 30% of AGI for gifts to public charities
  • Deductible up to 20% of AGI for gifts to private foundations
  • Capital gains tax completely eliminated on the appreciated amount
  • Must have held the asset for more than one year (long-term capital gain property)
  • If held one year or less, deduction limited to cost basis (not FMV)
  • Excess contributions carry forward for up to 5 years
  • Identify appreciated securities held more than 1 year with significant unrealized gains
  • Contact your brokerage to initiate a stock transfer (not a sale)
  • Provide the charity's brokerage account details (DTC number, account number)
  • Brokerage transfers shares directly — you never sell them

3. 3. Donor-Advised Fund (DAF)

  • Cash contributions: deductible up to 60% of AGI
  • Appreciated securities: deductible up to 30% of AGI
  • Tax deduction taken in the year of contribution to the DAF (not when grants are made)
  • Assets grow tax-free inside the DAF
  • Important 2026 note: DAF contributions do NOT qualify for the new non-itemizer deduction
  • Cash (check, wire, ACH)
  • Publicly traded securities (most common non-cash asset)
  • Mutual fund shares
  • Complex assets (some sponsors accept): privately held business interests, real estate, private equity, cryptocurrency
  • Choose from the sponsor's investment pools

4. 4. Qualified Charitable Distribution (QCD)

  • Annual limit: $111,000 per individual ($222,000 for married couples filing jointly), indexed for inflation
  • Age requirement: Must be 70 1/2 or older at the time of distribution
  • Eligible accounts: Traditional IRA, Rollover IRA, Inherited IRA (NOT 401(k), 403(b), or SEP/SIMPLE IRAs with active contributions)
  • Eligible charities: 501(c)(3) organizations. Does NOT include DAFs, private foundations, or supporting organizations
  • RMD satisfaction: QCDs count toward your required minimum distribution for the year
  • Not affected by the 0.5% AGI floor — QCDs remain fully effective regardless of the new floor
  • No itemizing required — QCDs reduce taxable income even if you take the standard deduction
  • Up to $55,000 (2026, indexed) can be directed to fund a Charitable Remainder Unitrust (CRUT), Charitable Remainder Annuity Trust (CRAT), or Charitable Gift Annuity (CGA)
  • One-time only, lifetime limit
  • Confirm you are 70 1/2 or older

5. 5. Charitable Trusts

  • CRAT (Charitable Remainder Annuity Trust): Pays a fixed annuity amount each year (at least 5% of initial value). No additional contributions allowed.
  • CRUT (Charitable Remainder Unitrust): Pays a fixed percentage (at least 5%) of the trust's value, recalculated annually. Additional contributions allowed.
  • Immediate income tax deduction based on the present value of the charitable remainder interest
  • Capital gains deferral: appreciated assets can be sold inside the trust without triggering immediate capital gains tax
  • Income stream to donor/beneficiaries
  • Assets removed from taxable estate
  • CRTs perform better when Section 7520 rates are HIGH (larger deduction)
  • Present value of the charitable remainder must be at least 10% of the initial contribution
  • Payout rate between 5% and 50% annually
  • Must be irrevocable

6. 6. Private Foundation

  • Cash contributions: deductible up to 30% of AGI
  • Appreciated securities: deductible up to 20% of AGI
  • Must distribute at least 5% of assets annually for charitable purposes
  • Subject to excise tax on net investment income (1.39%)
  • Requires annual Form 990-PF filing
  • Full control over investments, grants, and operations
  • Can hire staff, run programs, make scholarships
  • Family legacy vehicle
  • Can make grants to individuals (scholarships) and non-501(c)(3) entities (with expenditure responsibility)
  • Lower AGI deduction limits (30%/20% vs 60%/30%)

7. Step-by-Step Bunching Strategy

  • Calculate your non-charitable itemized deductions (SALT up to $40,000 for 2025+, mortgage interest, medical expenses above 7.5% AGI)
  • Determine the gap between those deductions and the standard deduction
  • Estimate how much charitable giving would push you over the standard deduction threshold
  • Contribute 2-3 years of planned giving in a single year (ideally into a DAF for timing flexibility)
  • Take the standard deduction in the off years

8. Bunching + DAF Combination

  • Contribute 2-3 years of planned giving to a DAF in a single tax year
  • Take the large itemized deduction in that year
  • Recommend grants from the DAF to your preferred charities over the following years
  • Take the standard deduction in off years
  • Repeat the cycle every 2-3 years

9. Exceptions to Appraisal Requirement

  • Publicly traded securities valued over $5,000 do NOT require a qualified appraisal (use the mean of high and low on the date of contribution)
  • Non-publicly traded stock valued at $10,000 or less does not require an appraisal

10. Key Documentation Rules

  • Acknowledgment must be obtained before filing the return (or the due date, including extensions)
  • Keep records for at least 3 years from the date the return was filed (or 2 years from the date the tax was paid, whichever is later)
  • For clothing and household items, the items must be in "good used condition or better" to be deductible
  • Quid pro quo contributions over $75: charity must provide a written disclosure statement estimating the value of goods/services provided

Common Mistakes

  • Donating to non-qualified organizations
  • Missing the written acknowledgment
  • Donating short-term stock
  • Selling appreciated stock first, then donating cash
  • Missing the December 31 deadline for QCDs

Pro Tips

  • Combine strategies:
  • Donate your most appreciated assets:
  • Pair stock donations with rebalancing:
  • Use DAFs for year-end flexibility:
  • Layer QCDs on top of standard deduction:

Sources

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