Charitable Giving

The goal is never just generosity — it's giving in a way where the IRS is effectively matching your contribution by eliminating taxes you would have paid anyway.

Key numbers

Most high earners give cash. That's the least efficient way to give. The tax code rewards giving appreciated assets — investments that have grown in value — because you avoid the capital gains tax you'd owe if you sold them first. Done right, charitable giving can reduce ordinary income, eliminate capital gains, and fund years of giving with a single contribution.

Donor Advised Funds (DAFs)

A Donor Advised Fund is a charitable account you open with a sponsoring organization (Schwab, Fidelity, Vanguard Charitable, and others). You contribute assets, receive an immediate tax deduction, and then recommend grants to the charities of your choice over time — on your schedule, not the IRS's.

The mechanics matter. The contribution to the DAF is the deductible event. Once assets are inside, they can be invested and grow tax-free until distributed. Two useful strategies:

1. Bunching: If your annual giving doesn't consistently exceed the $30,000 standard deduction (MFJ), you're likely getting no tax benefit from it. Bunching solves this by contributing two, three, or five years of giving into the DAF in a single year. You take a large itemized deduction that year, then grant money to charities annually as you normally would.
2. Front-loading in a high-income year: If you have a large liquidity event — a business sale, a big income year, a large capital gain — you can contribute a significant amount to a DAF in that year to offset income, then distribute to charities over years or decades.

What to Donate and Why It Matters

1. Cash: Simple and clean. You get a deduction up to 60% of AGI. But you're giving after-tax dollars. If you have appreciated assets, cash is the last thing you should donate.
2. Appreciated publicly traded stock or ETFs: The most efficient asset to donate in most cases. You deduct the full fair market value, and you owe zero capital gains tax on the embedded gain. Example: you bought $50,000 of stock that's now worth $200,000. Sell it and donate the cash — you owe capital gains on $150,000 first. Donate the shares directly — you deduct $200,000, pay zero capital gains.
3. Crypto: Treated identically to appreciated stock for tax purposes. Donating crypto held more than one year directly to a DAF gives you a fair market value deduction with no capital gains tax.
4. Real estate: You can donate appreciated real property and receive a fair market value deduction with no capital gains — but the logistics are more complex. An independent appraisal is required.
5. Private business interests: Closely held stock, LLC interests, or S-Corp shares can be donated before a business sale — often the most powerful timing to give. You get a fair market value deduction, avoid capital gains on the donated portion, and the DAF receives proceeds from the eventual sale tax-free. This requires careful planning well before a transaction closes.

Deduction Limits and Carryforwards

Qualified Charitable Distributions (QCDs)

For anyone age 70½ or older with a traditional IRA, QCDs are the most tax-efficient way to give. You direct a distribution from your IRA directly to a qualified charity — up to ~$108,000 in 2026 — and it counts toward your Required Minimum Distribution but is excluded from taxable income entirely. Unlike a regular charitable deduction, a QCD works even if you don't itemize.

The Asset Hierarchy

When planning a charitable contribution, the decision tree is straightforward:

1. Do you have appreciated assets held more than one year? Give those first — stock, crypto, real estate, or business interests before a sale.
2. If not, cash works, but consider bunching multiple years into a DAF to actually clear the standard deduction threshold.
3. If you're 70½+ and have IRA funds, QCDs are often more powerful than any deduction-based strategy.