The Big Payback: Charitable Giving Strategies that Save Money at Tax Time

‘Tis better to give than receive and for so many, engaging in personal philanthropy that supports their community is a part of who they are. For donors, charitable giving can garner significant tax benefits to possibly reinvest into their funds. Our experienced Development team recommends several strategies that enable donors to save money on taxes through charitable contributions and we have spoken to experts to explain the advantages.

1. Understand the Tax Deductions
 

Itemizing Deductions

To benefit from tax deductions on charitable contributions, you need to itemize your deductions on your tax return. This means you forgo the standard deduction in favor of listing all your deductible expenses, including charitable donations. Ensure that the total of your itemized deductions exceeds the standard deduction threshold to maximize your savings.

Qualified Organizations

To qualify for tax deductions, donations must be made to IRS-approved 501(c)(3) organizations. Before donating, check the organization’s status on the IRS website to ensure it has nonprofit status.
 

2. Bunching Contributions

If you’re close to the standard deduction threshold, consider "bunching" your contributions. This strategy involves making two years’ worth of donations in one year to exceed the standard deduction. For instance, if you typically donate $5,000 annually, consider donating $10,000 in one year. This can increase your itemized deductions and lower your taxable income.

Stefanie Pate, partner at Leech Tishman, describes why charitably inclined people should consider “bunching.” 

“Bunching allows clients to group two or more years of charitable contributions into one year, foregoing a planned charitable contribution the following year,” she said. “By itemizing in the bunching year and taking the standard deduction the next year or years, clients achieve a larger cumulative charitable deduction overall. This is also a great opportunity for taxpayers to take advantage of a donor-advised fund (DAF), as they can still recommend grants to one or more charities in tax years following the year of contribution to the DAF. Given the impending sunset of the Tax Cuts and Jobs Act at the end of 2025, which had increased the standard deduction available to individuals, joint filers and heads of household, it is especially important for clients to take advantage of bunching in the 2024 and 2025 tax years.”
 

3. Donor-Advised Funds (DAFs)

DAFs allow you to make a charitable contribution, receive an immediate tax deduction, and then recommend grants from the fund over time. This can be an effective way to manage your giving while maximizing tax benefits. You can contribute cash, stocks, or other assets to a DAF and enjoy the tax advantages immediately.

“There are many positives to starting a DAF,” said Waldron Private Wealth Partner and Senior Wealth Strategist Eric Vogt. “First, there’s a big tax break now. You get that tax deduction in the year of the gift. You also don’t pay taxes on future growth of those assets.”

Vogt also said that giving can be as patient and mindful as a client wants to be. “Give when you are ready. Take your time deciding which charities to support. Give over several years or all at once in the future. DAFs are time-flexible and can drive marked impact, while having the ability to pass charitable asset control to the next generation.”
 

4. Other Types of Donations
 

Cash Contributions

Cash donations are the most straightforward way to give. You can deduct contributions made by check, credit card, or online payment. Remember to keep your receipts, as you'll need to provide documentation for any donation over $250.

Non-Cash Donations

Donating goods, such as clothing, furniture, or vehicles, can also lead to tax deductions. The fair market value of the items donated can be deducted. Make sure to get a receipt and keep an inventory of the items, noting their condition and estimated value.

Volunteer Expenses

While you cannot deduct the value of your time spent volunteering, you can deduct certain expenses incurred while volunteering, such as mileage, travel costs, and supplies. Keep detailed records of these expenses to claim them on your tax return.
 

5. Consider Qualified Charitable Distributions (QCDs)

If you’re 70½ or older, you can make QCDs from your traditional IRA directly to a qualified charity. These distributions can count toward your required minimum distributions (RMDs) without being included in your taxable income, effectively lowering your tax bill. “It is important to note that QCDs cannot be made to a DAF, but rather, must be made directly from the IRA to the public charity,” Pate said. 
 

6. Keep Detailed Records

To take advantage of tax deductions from charitable giving, it’s essential to maintain accurate records. Keep receipts, bank statements, and any correspondence with the charitable organization. For non-cash donations, use IRS Form 8283 if your total deduction exceeds $500, and be prepared to provide additional documentation for larger gifts.
 

Conclusion

“It is important for us, as advisors, to educate clients on how to maximize charitable contributions within the prescribed limitations, as well as the substantial impact that end of year giving has on the charitable community,” Pate said. “The use of DAFs, bunching, and QCDs, are just a few examples of strategies we discuss with clients. Other strategies may include the benefit of contributing highly appreciated non-cash assets to a DAF (versus cash), the use of charitable donations to offset tax liabilities on withdrawals from tax deferred accounts, and charitable trust planning.”

As far as timing goes, Vogt has an idea why the end of the year is always a busy time for charitable giving and it’s not just the sound of the Salvation Army bell ringing around the holiday.

“For many clients, big pushes come at the end of the year, because they have a better idea of their tax situation and impact of the charitable donation. An element for many is beating deadlines for corporate matches, and yes, many people just enjoy giving around the holidays.”