Key Takeaways
- Giving to charity can be an effective way to have a lasting impact while also reducing your tax exposure, but some giving strategies are more effective than others — and 2025 is a critical year to implement the right approach before significant tax law changes take effect in 2026.
- If you plan to make a charitable donation before the year-end deadline, consider taking steps to maximize your donation and exploring tax-efficient vehicles beyond simple cash contributions.
- A qualified wealth manager can help you implement a charitable giving strategy that’s in line with your overall financial goals while optimizing for both tax benefits and philanthropic impact.
- Starting in 2026, new tax rules will impose a 0.5% AGI floor for itemized charitable deductions and cap deduction benefits at 35% for high earners, making 2025 an ideal year to accelerate certain giving strategies.
Americans are notoriously generous when it comes to giving to charities. In 2024, individuals, foundations, corporations and bequests gave $592.5 billion to charitable organizations, a 6% increase over 2023. Of those donations, 66% (approximately $391 billion) were made by individuals.
If you plan to donate to charity before 2025’s year-end charitable giving deadline, consider taking steps to help maximize your impact while also reducing your tax exposure. More importantly, understand that the landscape for charitable deductions is shifting significantly.
A critical update for high-income earners is that beginning in 2026, the tax law will impose a 0.5% AGI (adjusted gross income) floor on charitable deductions for itemizers, meaning only contributions exceeding 0.5% of your AGI will be deductible. Additionally, the tax benefit from itemized deductions is capped at 35% for taxpayers in the top bracket.
This means that for a high-net-worth individual with a $1 million AGI, only charitable giving beyond $5,000 qualifies for deductions starting in 2026. This creates a compelling case for implementing charitable strategies now, in 2025, while current rules still provide maximum deduction benefit.
The following strategies can help you achieve both your philanthropic goals and tax objectives.
In-Kind Donations of Appreciated Securities: Maximize Impact and Tax Benefits
If you typically write a check each year to your favorite charity, you may want to reconsider your approach. In-kind donations of appreciated securities — such as stocks, bonds or mutual funds — can increase the amount the organization receives while also increasing your tax benefit.
How it works: The advantage over cash donations
For example, say you wish to donate $5,000 to your favorite charity, but you need to sell some stock to do so. Your cost basis on the stock is $1,000. If you sell the stock for $5,000 and donate the cash from your sale, you will owe capital gains tax on $4,000. At a 20% capital gains tax rate, you’d owe $800 on the sale, which leaves $4,200 as a donation to the charity. Assuming you file an itemized tax return, you’d be able to claim a $4,200 charitable deduction.
But what if you decided to make an in-kind donation of the stock rather than selling it? Doing so would:
- Allow you to avoid triggering a taxable event entirely
- Allow the charity to receive the entire $5,000 value of the stock
- Allow you to claim the full $5,000 deduction (the charity’s status as a tax-exempt organization allows them to sell the stock without paying taxes)
- Eliminate your capital gains tax liability on the appreciated portion
This is a win-win situation for both you and the charity!
Advanced Strategy: Bunching Donations for Maximum Impact
Given the 0.5% AGI floor taking effect in 2026, consider a bunching strategy: concentrate two years’ worth of charitable donations into 2025, then take the standard deduction in 2026. This approach allows you to exceed the AGI floor in year one and capture substantially larger deductions.
Example: A high-income earner with a $1M AGI and annual charitable intent of $50,000 might donate $100,000 in appreciated securities in 2025 (claiming the full $100,000 deduction) and take the standard deduction in 2026, avoiding the 0.5% floor entirely.
Pro tip: This strategy works especially well with publicly traded stocks, mutual funds, bonds and other investment securities, avoiding the complexity of real estate or private company stock donations while maximizing the donor’s tax efficiency.
Donor-Advised Funds: Strategic Control With Immediate Tax Benefits
A donor-advised fund (DAF) can be an effective vehicle for managing your charitable donations over time. DAFs are 501(c)(3) charitable funds that can receive irrevocable charitable gifts and allow you to retain control over when and to which organizations donations are made.
Why DAFs are ideal during high-income years
DAFs can be a particularly effective tax planning strategy during high-income years, because you can make a single large donation of cash, stock or other assets and receive a federal income tax deduction in the current year (for itemized filers). Once you contribute assets to the account, you can allocate them to various charities over time. This strategy is often used by individuals who receive:
- A large bonus or stock awards
- An inheritance or a significant windfall
- Business sale proceeds
- Another significant influx of income in a single year
Investment growth and legacy building
Another major benefit of using a DAF to manage your charitable donations is that the assets can be invested and grow tax-exempt within the account, with no legal deadline for when the funds must be donated to charity. This provides an opportunity to establish a charitable giving legacy for your children and grandchildren, as they can have a say in how assets are donated to various organizations.
Family-focused DAF strategy
Consider a family-controlled DAF, where adult children and grandchildren serve as advisors on grant recommendations. This turns charitable giving into a family values transmission exercise, educating younger generations about philanthropic decision-making while aligning giving with family priorities.
Regulatory context: With new tax rules taking effect in 2026, consider accelerating significant DAF contributions in 2025 to help maximize your deduction benefit before the 35% deduction cap and 0.5% AGI floor apply to itemized deductions.
Qualified Charitable Distributions: Transform Your RMD Into Meaningful Giving
Many high-net-worth retirees dread taking their required minimum distribution (RMD) each year, because they must pay income tax on the assets as they’re withdrawn, with the potential of bumping themselves up into a higher tax bracket.
Instead of taking your RMD as a distribution to yourself, it may make sense to donate those assets directly to a charity as a qualified charitable distribution (QCD). QCDs are an effective, yet complex, tax planning and charitable giving strategy. Read on for what you need to know.
QCD eligibility and requirements
- QCDs are only available to those age 70 ½ and older.
- QCDs can only be donated to 501(c)(3) charitable organizations (donor-advised funds and private foundations aren’t eligible).
- To qualify as the current year’s RMD, the QCD must be processed before December 31.
- The distribution must be made directly to the charitable organization by the retirement account’s trustee (distributions issued in your name aren’t eligible).
- The 2025 QCD limit is $108,000 per individual or $216,000 per married couple filing jointly (indexed annually for inflation).
Tax benefits beyond simple deductions
Not only are QCDs exempt from your annual taxable income but they also don’t impact your adjusted gross income (AGI). This creates powerful secondary benefits, such as:
- Medicare premium protection – Because certain phase-outs, such as Medicare IRMAA premiums and Medicare high-income surcharges, are based on AGI, making a QCD rather than a direct distribution may allow you to qualify for additional Medicare benefits worth hundreds of dollars monthly for retirees.
- No itemization required – Because QCDs are excluded from your taxable income, you don’t need to file an itemized tax return in order to realize the benefits of making charitable donations.
QCD sequencing strategy
Savvy retirees coordinate QCDs with Social Security claiming and tax bracket management to minimize taxable income and preserve Medicare premium thresholds. Your wealth manager can model multiple scenarios to help determine the optimal year and amount for QCD execution.
Charitable Trusts: Balancing Income, Legacy and Tax Efficiency
A charitable trust can be an effective way to continue benefiting from your assets while also leaving a lasting charitable legacy. There are two main types of charitable trusts, which we’ll explore below.
Charitable remainder trust: Income now, charity later
A charitable remainder trust (CRT) allows a donor to select an income beneficiary, a trustee and a remainder trustee (a charitable organization). The trustee invests assets in the trust, and the income beneficiary (typically the donor) receives an annual income payment from the trust’s assets. When the income beneficiary dies, the assets remaining in the trust are donated to the designated charitable organization (the remainder trustee).
Who should consider: High-net-worth individuals with highly appreciated securities seeking retirement income plus tax efficiency. A business owner with $2M in concentrated stock can transfer it to a CRT, receive lifetime income (avoiding capital gains tax) and designate a charity as remainder beneficiary.
Charitable lead trust: Charity now, family later
A charitable lead trust (CLT) is, essentially, a CRT in reverse. A CLT provides income to a charity for a specified period of time, and a designated individual receives the assets remaining in the trust once the income period ends.
Who should consider: Affluent parents seeking wealth transfer to children with estate tax efficiency. Contribute appreciated assets to a CLT, claim an income tax deduction today and transfer remaining assets to heirs at discounted values for gift tax purposes.
| Feature | CRT | CLT |
|---|---|---|
| Income Flow | Donor receives income now; charity gets remainder | Charity receives income now; donor/heirs get remainder |
| Primary Objective | Generate personal retirement income while supporting charity | Transfer wealth to heirs efficiently with estate tax reduction |
| Tax Deduction | Partial deduction based on remainder value to charity | Income tax deduction for present value of charitable transfer |
| Best Use Case | Holding highly appreciated assets; avoiding capital gains | Sophisticated estate planning; intergenerational wealth transfer |
| Family Impact | Creates predictable retirement income stream | Holds accumulated assets for the next generation |
| Complexity Level | Moderate; requires actuarial calculations | Complex; requires experienced trust counsel |
Capital gains advantage: The key tax benefit
Both CRTs and CLTs offer significant capital gains tax savings. The trustee can sell appreciated assets inside the trust without triggering capital gains tax for the donor — a powerful tool when holding highly appreciated securities like concentrated stock positions or appreciated investment portfolios. This makes them especially tax-efficient for individuals transferring substantial appreciated assets.
Beyond DAFs and Trusts: Alternative Charitable Vehicles
While donor-advised funds and charitable trusts form the core of most sophisticated charitable giving plans, additional vehicles exist for specific situations.
Charitable gift annuities (CGAs)
A charitable gift annuity combines elements of both charitable giving and income planning. You make a lump-sum donation to a charity and receive fixed payments for life in return. A portion of your payment is income (taxed as ordinary income), and a portion is a return of capital (tax-free). You receive a charitable income tax deduction for the present value of the remainder interest going to the charity.
Who should consider: Retirees seeking guaranteed income for life while supporting a specific charity they’re passionate about. Also attractive for those seeking to avoid market volatility while maintaining charitable impact.
Private foundations vs. donor-advised funds
While private foundations offer maximum control over charitable giving, they require annual IRS filings and a 1% excise tax on net investment income. DAFs provide similar control benefits without these administrative burdens, making them ideal for clients seeking simplicity. However, private foundations offer distinct advantages for multigenerational dynasty-level giving and complete control over governance.
When private foundations make sense
- Families with significant assets ($50M+) committed to multi-century giving
- Desire for complete governance control and decision-making power
- Businesses or real estate that need to be held within a charitable entity
- Sophisticated wealth transfer as part of a broader estate plan
Family Philanthropy: Creating a Multigenerational Charitable Legacy
For many high-net-worth families, charitable giving extends beyond personal tax benefits — it’s about transmitting family values and creating lasting impact across generations.
Educating heirs through charitable involvement
Rather than surprising heirs with large charitable bequests, proactive families:
- Educate children about causes the family supports
- Include younger family members in grant recommendation meetings
- Explain the tax and estate planning rationale behind giving strategies
- Create a charitable giving mission statement for the family
- Involve heirs in the decision-making process for donor-advised funds or private foundations
This approach turns giving into a family value transmission exercise, ensuring your children understand both your philanthropic priorities and the tax-planning rationale behind your choices.
Tax-efficient wealth transfer through giving
For estates exceeding federal exemptions (currently $13.99M per individual in 2025, increasing to $15M in 2026), charitable giving is a wealth transfer strategy that can:
- Remove appreciated assets from your taxable estate
- Provide income during a lifetime (via CRT) or to heirs (via CLT)
- Reduce combined estate and income taxes significantly
- Create documented values-based legacy
- Allow heirs to participate in carrying forward family values
The “giving while living” philosophy
Many wealth advisors now recommend giving meaningful amounts during your lifetime rather than delaying until death. Benefits of doing so include:
- The personal satisfaction of seeing giving impact unfold
- Tax deductions are available during your lifetime, when most valuable
- The opportunity to involve family in giving decisions
- Reduced final taxable estate, enhancing future wealth for heirs
- Demonstrated philanthropic values for the next generation
Working With Your Wealth Team: Implementation and Coordination
Implementing sophisticated multi-generational giving strategies requires coordination between wealth advisors, tax professionals and estate planning attorneys to help ensure strategies align with overall financial objectives and family goals.
A qualified wealth manager understands the interplay between:
- Charitable giving strategies and overall tax planning
- Timing considerations for donations and tax law changes
- Estate planning objectives and charitable giving vehicles
- Family goals and multigenerational wealth transfer
- Income needs and legacy objectives
The 2025 planning window
With significant charitable deduction changes taking effect in 2026, now could be the ideal time to implement a strategy tailored to your situation. Don’t miss this opportunity to lock in current tax benefits while exploring whether a donor-advised fund, qualified charitable distribution, charitable trust or multi-vehicle approach could maximize both your tax savings and your philanthropic impact.
