Thoughtful charitable giving strategies that may help you support the causes you care about while reducing unnecessary taxes
For more than 40 years as a CPA and financial advisor, I spent much of my career encouraging clients to save and invest. The goals were familiar: paying for a child’s education, celebrating weddings, enjoying a comfortable retirement, and creating financial security for future generations.
Today, many of those same clients have achieved those goals. My role has changed as well.
Instead of helping them accumulate wealth, I now help them use it intentionally. The challenge is no longer whether they will run out of money. For many, the real concern is that they will run out of time.
That can be a surprisingly difficult transition. People who spent decades practicing financial discipline don’t suddenly become comfortable spending money simply because they can. They were taught to live within their means, avoid unnecessary displays of wealth, and save for tomorrow. Those habits are deeply ingrained.
As a result, many of our conversations now focus on a different question: How can they enjoy the wealth they have worked so hard to build while still leaving a meaningful legacy for their children, grandchildren, and the charitable organizations they care about?
Having spent decades preparing tax returns before becoming a wealth advisor, I’ve learned that some of the best tax strategies aren’t simply about paying less in taxes. They’re about being intentional with the wealth you’ve worked so hard to build.
One of the most rewarding aspects of my work is helping clients reduce unnecessary taxes while supporting the charitable organizations and causes that matter most to them. With thoughtful planning, those goals often go hand in hand.
Over the years, I’ve found that the most effective charitable strategies rarely exist in isolation. They’re often coordinated with retirement planning, investment management, estate planning, and long-term tax planning. Here are a few of the approaches I discuss most often with clients.
Give Smarter, Not Just More
One of the conversations I have most often goes something like this:
“I’ve been giving to the same charities for years, but I’m not sure I’m receiving much of a tax benefit anymore.”
That’s because changes in the tax law, particularly the higher standard deduction, mean many taxpayers receive little or no additional tax benefit from making annual charitable donations.
Fortunately, with proper planning, there are often ways to improve the outcome.
For taxpayers whose itemized deductions are close to the standard deduction, one strategy is to “bunch” several years of charitable contributions into a single year. Rather than donating the same amount annually, they may choose to make several years’ worth of planned gifts at once. This may allow them to itemize deductions in that year while claiming the standard deduction during the years that follow.
Illustrative example only – 1
One couple had faithfully donated approximately $10,000 each year to their church for many years. Because they were now taking the standard deduction, those annual gifts no longer provided much of a tax benefit.
Rather than continuing to donate cash, they contributed highly appreciated shares of Apple stock to their church. By donating appreciated securities they had owned for many years, they were able to avoid the capital gains taxes that would have resulted from selling the shares themselves. Because the larger contribution exceeded the standard deduction threshold that year, they also received a greater tax benefit. They then replenished their investment portfolio by purchasing new Apple shares at today’s higher cost basis.
Sometimes, changing what you give can be just as valuable as changing how much you give.
A Donor-Advised Fund Can Offer Flexibility
Many clients hesitate to bunch charitable contributions because they don’t want to change the amount their favorite charities receive each year.
A donor-advised fund (DAF) can often solve that challenge.
The client makes one larger charitable contribution and receives the tax deduction in that year. The assets inside the DAF can then be invested and distributed to charities over future years, allowing the client to maintain a consistent pattern of annual giving.
If those investments grow over time, even more money may ultimately be available to support the charitable causes they care about.
Another benefit is that appreciated securities, such as stocks or ETFs held for more than one year, can often be contributed directly to the donor-advised fund. Doing so may allow the donor to receive a charitable deduction based on the fair market value of the investment while avoiding capital gains taxes that would otherwise be due upon sale.
Illustrative example only – 2
One retired couple had budgeted approximately $25,000 each year for charitable giving. Because they no longer itemized deductions, they felt they were losing much of the tax benefit from those gifts.
The year they both retired happened to be the final year they received employer buyout payments, placing them in one of the highest tax brackets of their lives. Together, we decided to contribute several years’ worth of highly appreciated ETF shares into a donor-advised fund.
They received the charitable deduction when it was most valuable, avoided capital gains taxes on the appreciated investments, and can now recommend grants to their favorite charities over time while the remaining assets continue to be invested. We also planned ahead so that, once Qualified Charitable Distributions become available from an IRA, those distributions can become their primary source of charitable giving.
Coordinating charitable planning with major life events such as retirement often creates opportunities that might otherwise be missed.
One of My Favorite Strategies for IRA Owners
For individuals who are age 70½ or older, one of the most valuable charitable planning opportunities may be a Qualified Charitable Distribution (QCD).
Current law allows annual QCDs up to the IRS limit (currently $108,000 per person, indexed annually for inflation). Because the funds are transferred directly from a traditional IRA to a qualified charity, the distribution is excluded from taxable income, which may provide a greater benefit than receiving a charitable deduction.
Once Required Minimum Distributions (RMDs) begin, a QCD can also satisfy all or part of the annual RMD requirement.
Beyond reducing current taxable income, this strategy may also reduce the size of a traditional IRA over time, potentially lowering future taxes for both the client and, depending on their circumstances, their heirs.
Planning Before a Major Liquidity Event
If you’re preparing to sell a closely held business, investment real estate, or another highly appreciated asset, charitable planning should begin before the sale, not after it.
In certain situations, a Charitable Remainder Unitrust (CRUT) may help reduce taxes, provide an income stream, and create a lasting charitable legacy.
A CRUT allows appreciated assets to be transferred into a trust before the sale occurs. The trust can then sell the asset, allowing the gain to be recognized under the trust’s tax rules rather than creating an immediate taxable event for the donor. The donor may also receive a charitable income tax deduction and an income stream for life or for a specified term, with the remaining assets ultimately passing to the designated charitable organizations.
Because these trusts are sophisticated planning tools with strict legal and tax requirements, they should be established only with the guidance of experienced attorneys, CPAs, and financial advisors.
Illustrative example only – 3
One business owner had spent decades building a successful manufacturing company and was preparing for retirement. He had received an attractive offer to purchase the business but was concerned about the significant capital gains taxes that would result from the sale.
Working closely with his attorney, we established a Charitable Remainder Unitrust before the transaction closed. The ownership interest was transferred into the trust prior to the sale, allowing the trust to complete the transaction and continue investing the proceeds. The trust now provides him with an annual income based on the value of the trust assets during his lifetime. Upon his passing, the remaining assets will benefit the charitable organizations he selected.
The strategy allowed him to retire with confidence, significantly reduced the immediate tax impact of the sale, and created a lasting charitable legacy.
The key is timing. Once a transaction has closed, many charitable planning opportunities are no longer available.
Remember Why You’re Giving
While the tax savings from charitable planning can be meaningful, I always encourage clients not to let the tax deduction become the primary motivation for giving.
The greatest reward comes from knowing your generosity is improving lives, strengthening your community, and supporting organizations that reflect your values.
Every person’s financial situation is different, and the strategies discussed here are not appropriate for everyone. With thoughtful planning and guidance from experienced advisors, charitable giving can become one of the most rewarding parts of a comprehensive financial plan, allowing you to support the causes you care about while minimizing unnecessary taxes.
After more than four decades of helping people build wealth, reduce taxes, and prepare for retirement, I’ve come to believe that one of the greatest joys of my career is helping clients see the impact their generosity can have while they’re here to experience it.
If you would like more information about the terms and strategies discussed in this guide, or if you’re ready to explore how they apply to your specific situation, contact Waverly Advisors. With experience working with individuals, families, and executives managing significant wealth, we specialize in creating tailored strategies with the goal to help you grow, protect, and transfer your assets effectively.
