Donating to a favorite cause feels good, but it can also be a smart financial move. The key according to a financial advisor? Knowing how to give in a way that actually lowers your tax bill.
A lot of people assume that every charitable donation leads to a tax deduction. That’s not always true. In fact, many generous givers miss out on valuable tax savings simply because they don’t know the rules or the smarter ways to give.
Why Your Generosity Might Not Be Saving You Money
Here’s the deal: to claim a tax deduction for charitable donations, you need to itemize your deductions. But if your total itemized deductions including charitable gifts don’t add up to more than the standard deduction, there’s no tax benefit.
For example, someone who donates $2,500 to charity and has $10,000 in state and local taxes (the cap under current law) would have $12,500 in itemized deductions. That’s less than the 2023 standard deduction of $13,850 for single filers so no extra tax break from that donation.
The Simple Fix Is To Bunch Your Donations
Want to make your generosity work harder? Try bunching donations as our friends at Bott & Associates, Ltd. would suggest.
Instead of giving $2,500 every year, give several years’ worth at once. A $10,000 donation in a single year would raise total deductions to $20,000 which is far above the standard deduction. That extra $6,150 could mean nearly $2,500 in tax savings (assuming a 40% tax rate). In the following years, you simply take the standard deduction and skip itemizing.
Same total donation over time, just more money saved.
Take It To The Next Level With A Donor Advised Fund (DAF)
Want flexibility and a tax deduction? A Donor Advised Fund might be the answer.
Think of it like a charitable investment account: contribute now (and get the deduction), then decide later where the money goes. The funds can even grow tax-free while waiting to be granted to nonprofits of your choice.
You stay in control of the timing and direction of your giving while still getting an immediate tax benefit. It’s a great option for those who want to give strategically and stay engaged with the causes they support.
Bonus Move Is To Donate Stock, Not Cash
Here’s a pro tip: if you’ve got highly appreciated stock, don’t sell it, donate it.
Let’s say you have $10,000 worth of stock that only cost you $1,000. Selling it would trigger a $9,000 capital gain resulting in $2,700 in taxes (at a 30% combined rate). But if you donate the stock directly to a DAF or charity, there’s no capital gains tax and you still get the full $10,000 deduction.
It’s a win for you and a bigger gift for the charity.
The Bottom Line
Charitable giving doesn’t have to be just about writing a check. With a little planning, your generosity can go further for your causes and your finances.
Whether it’s bunching donations, setting up a Donor Advised Fund, or donating appreciated assets, there are smart ways to give that save you money and maximize impact.
Talk to a legal and financial team to find the best strategy for you. Giving back feels great, and it feels even better when it works in your financial favor.