Five Ways to Give More Tax Efficiently

While often not the main impetus for one’s giving, the tax benefit’s for charitable contributions shouldn’t be overlooked by the tax savvy investor.  In this piece we will evaluate five strategies that can be used to give more tax efficiently.

To set the table, let’s first examine how giving charitably impacts your taxes.  Donations made to a 501(c)(3) charitable organization are considered an itemized deduction for tax payers.  This means that unless you itemize your taxes – requiring $27,700 of itemized deductions in 2023 for a married couple filing jointly ($12,950 if single) – you likely will not actually receive a tax deduction for your donation.

Gift Appreciated Stock

When you gift appreciated stock instead of cash, you are able to get the itemized deduction for the charitable gift and you are able to avoid paying capital gains taxes on the gifted stock as well.  The charity receives the security and then as a tax-exempt organization is able to turn around and sell the security for tax free.

There are limitations for the amount of appreciated stock you can gift relative to your income in a given year that you will want to be cognizant of.  In 2023, the limit that you can deduct on gifts of appreciated stock is 30% of AGI with the amount over being carried over to deduct in future years.

You will also want to make sure that any gifted stock has been held long term – meaning you have owned it for over one year.  The IRS does not allow you to deduct the full value on a gift of short term appreciated stock, instead limiting you to the cost basis of the security for your deduction.

Example: John would like to make a gift of $50,000 and elects to give appreciated stock instead of cash.  He owns shares of ABC Co. that has a basis of $10,000 and has been owned over 1 year.  Being in the 32% marginal tax bracket he will get a tax deduction of roughly $16,000 and will avoid capital gains taxes of up to $11,900 for a total tax savings of $27,900 on the gift.  If he has the funds on hand he can immediately buy ABC Co. stock back and his new basis will be $50,000.

Utilize a Donor Advised Fund

Families looking to maximize charitable deductions in a given year or endow their charitable giving can utilize a donor advised fund as a vehicle to accomplish their goals.  The donor advised fund is considered a 501c(3) charity in the eyes of the IRS so cash or appreciated securities can be gifted to the fund and the donor receives a deduction in the year gifted.  The received funds will then be invested and receive tax free growth until they are ultimately distributed to the charity or charities specified by the donor.

Say a family would like to endow their charitable giving to a cause they care about – hoping to give $5,000 per year in perpetuity.  They hold $100,000 of ABC Co. stock with a basis of $10,000 that they gift into their Donor Advised Fund receiving a charitable deduction and avoiding the capital gains taxes as outlined previously.  The funds are then invested until distributed to the end charity – XYZ Charity.  With gifts of $5,000 per year, the funds will continuously be distributed until no funds remain.

Bunching your Gifting

If you evaluate your situation and determine with your CPA that you will be on the threshold to itemize or that you will be in an unusually high tax bracket in a given year you can bunch your charitable giving into a single tax year that could be more impactful from a savings standpoint.  If no end charity recipient has been determined, a donor advised fund can be utilized as a vehicle for the charitable gift to be donated until ultimately distributed.

With the threshold to itemize being $27,700 in 2023 for a married couple it may be determined that a couple will not eclipse the threshold in a given year based on their planned giving.  If they choose to bunch two or three years of giving into one year and donate the funds to a donor advised fund until disbursement they can obtain a tax benefit for the giving that they wouldn’t have otherwise received.

Example: John is set to have $20,000 in itemized deductions when factoring in his charitable giving of $10,000 per year and his other itemized deductions.  In order to obtain the itemized deduction this year he elects to gift three years of charitable giving ($30,000) into a donor advised fund that he will ultimately gift from in $10,000 increments.  This moves his itemized deductions for the year up to $40,000 and allows him to receive the tax benefits associated with his giving.  He will then plan to take the standard deduction of $27,700 in the next two years as it gives him the largest multi-year tax benefit.

The other common time that this strategy could be utilized is in unusually high income tax years.  Say you are having a liquidity event like the sale of your business, IPO of employer stock, vesting of a significant number of stock options, or receive a large, one-time bonus.  Because you will find yourself in a higher tax bracket than normal the deductions associated with giving are more valuable.  By bunching giving in the year of the high income you will then receive a greater tax benefit for your gift.

Example: Jane normally makes $120,000 per year putting her in the 24% tax bracket.  This year, she will have $200,000 worth of restricted stock units vest increasing her income to $320,000 and putting her in the 35% tax bracket.  She normally gives $10,000 per year but elects to bunch $50,000 of giving into a donor advised fund to maximize her deduction in the high income year.  Given the 11% difference between the 24% bracket and the 35% bracket this strategy saves her an extra $5,500 in taxes.

Make a Qualified Charitable Distribution

If over the age of 70.5, you may want to consider gifting funds directly from your IRA account to the charity of your choice as a qualified charitable distribution.  These gifts are not considered a taxable distribution, ensuring that you get the tax deduction for giving regardless of whether you itemize your taxes.

Up to $100,000 in qualified charitable distributions can be made in a year and they are not counted as income which is advantageous for Medicare surcharge calculations.  Additionally, for those over the age of 73 these distributions are counted towards your RMD figure.  401(k)’s are not eligible to make qualified charitable distributions so you will want to be sure that an IRA is used.

Example: John is 73 and has an RMD of $20,000 for the year.  As his home is paid off and he has no other itemized deductions other than his planned charitable giving of $20,000 he plans to take the standard deduction this year.  He can make his $20,000 gift from his IRA as a qualified charitable distribution, allowing him to get the tax break of the gift on top of the standard deduction.  This gift will also satisfy his required distribution for the year meaning he does not have to take any additional funds from his IRA.

Utilize Employer Match

According to research done by, 66% of companies offer an employer match on charitable giving.  That said, they also found that an estimated $4 to $7 billion in unclaimed matching funds goes unused every year.

If you are giving charitably, make sure that you are evaluating the benefits offered by your employer to have your gifts matched.  These matching funds are not considered income and therefore allow you to give funds charitably that are not taxable to you.

You’ll want to make sure that you understand your employers policies around what gifts are matched and what the requirements to receive the matching funds are.  Oftentimes, this is where the hang-up occurs as people intend for funds to be matched but don’t complete the necessary follow through steps for the match to occur.

These five strategies can be considered based on your specific tax and income situation but it is always smart to consult your financial planner and CPA before enacting any strategies.  If you’d like to understand how these strategies can fit within the context of your overall financial plan, schedule an introductory call with us to review your situation.

This information does not purport to be a complete description of the securities, markets, or developments referred to in this material. The information has been obtained from sources considered to be reliable, but we do not guarantee that the foregoing material is accurate or complete.  Any opinions are those of Michael Dunham and not necessarily those of Raymond James.  This material is being provided for informational purposes only.

Please note, changes in tax laws may occur at any time and could have a substantial impact upon each person’s situation. While we are familiar with the tax provisions of the issues presented herein, as Financial Advisors of RJFS, we are not qualified to render advice on tax or legal matters. You should discuss tax or legal matters with the appropriate professional.

Donors are urged to consult their attorneys, accountants or tax advisors with respect to questions relating to the deductibility of various types of contributions to a Donor-Advised Fund for federal and state tax purposes.  To learn more about the potential risks and benefits of Donor Advised Funds, please contact us.

The hypothetical examples are for illustration purposes only.

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