Americans consistently rank among the world’s most generous charitable donors. However, most Americans are not aware of the many vehicles available to maximize the tax benefits of their donations. By developing a Strategic Charitable Giving Plan focused on both supporting your giving objectives and maximizing the available tax advantages, you can make the most of your charitable donations. This overview explores key giving strategies, from the simplest to the more complex, and outlines their advantages, disadvantages, and implementation considerations.

Gifts of Appreciated Securities & Cash

The simplest way to support your favorite charities is through gifts of cash or appreciated securities (i.e., stocks and mutual funds). Both types of gifts offer federal income tax deductions, but appreciated securities provide the additional benefit of capital-gains tax avoidance.

Advantages:

• Cash gifts are both simple to make and deductible for federal income taxes for taxpayers who itemize deductions. Deductions are subject to a limit of 60% of adjusted gross income (AGI) in any one year. However, amounts above 60% of AGI can be carried forward for up to five years.
• Gifts of appreciated securities, held for longer than one year, can be deducted for federal income taxes at fair-market value subject to a limit of 30% of AGI. As with cash gifts, excess amounts can be carried forward for up to five years. In addition to the benefit of a tax deduction, by gifting the asset in kind you also avoid incurring capital gains taxes on the asset’s appreciation.
• Both cash and securities are accepted and easily processed by most charities.

Disadvantages:

• The federal tax deduction is only available if you itemize deductions rather than applying the standard deduction on your federal tax return.
• Appreciated securities must meet the long-term holding period requirement for optimal tax benefits.
• It can be difficult to donate securities at the end of the year due to processing constraints. (Donating securities to a donor advised fund and then giving a future grant to the charity may be a better solution if a quick turnaround is needed at the end of the year.)

IRA Qualified Charitable Distributions (QCDs)

Taxpayers aged 70½ and older may distribute up to $108,000 per year from their IRA to a qualified charity through a Qualified Charitable Distribution (QCD) from their individual retirement account. These distributions satisfy required minimum distributions (RMDs) and are excluded from taxable income.¹ Under current law, the QCD limit is subject to an annual inflation adjustment. Therefore, it is expected to increase over time.

Advantages:

• QCDs reduce taxable income, which may lower Medicare premiums and mitigate the taxability of Social Security benefits.
• QCDs can satisfy all or a portion of RMDs without increasing taxable income. Depending on the state where you live, QCDs may also reduce the state income tax that you would otherwise owe on the corresponding RMD amount.

Disadvantages:

• QCDs have an annual limit, with no carryforward provision.
• QCDs must go directly to qualified charities, not donor-advised funds or private foundations.

Charities as Designated Beneficiary of an IRA

A public charity can be named as the beneficiary of an IRA, fulfilling the charitable intent of the donor at death. Under the SECURE Act of 2020 and its 2.0 update in 2022, most non-eligible designated beneficiaries, such as non-spouse heirs and adult children, must fully distribute inherited IRAs within 10 years. As a result, IRAs have become one of the least tax-efficient assets to pass to individuals but remain ideal for charitable gifts.

If there are other non-retirement assets in the estate which can pass to the non-spouse heirs and adult children, it may be more tax efficient from both an estate and income tax perspective to name a charity as the designated beneficiary of an IRA.

Advantages:

• Because qualified charities are tax-exempt, they can receive the full value of the IRA without paying income tax. In contrast, individual heirs will owe income tax on distributions from a traditional IRA that they inherit.
• The IRA amount left to charity is removed from the taxable estate, potentially reducing estate taxes for large estates.
• Designating a charity as an IRA beneficiary typically requires only a beneficiary form update and avoids probate.
• Though included in the gross estate, charitable IRA beneficiary designations qualify for an estate tax charitable deduction.

Disadvantages:

• Once the IRA owner dies, the beneficiary designation becomes irrevocable. Heirs cannot change or redirect the charitable gift, even if personal or financial circumstances change.
• Naming a charity as a beneficiary does not produce a current income tax deduction. It’s a legacy tool, not a present-day giving strategy.
• If complex beneficiary designations are listed (e.g., family and charity), calculating and administering the IRA split can lead to delays before the custodian makes final distributions.

Donor Advised Funds

A Donor Advised Fund (DAF) is a philanthropic account established under a sponsoring public charity. Donors can contribute cash, securities, or other assets and receive an immediate tax deduction. They can then recommend grants from their DAF to qualified charities immediately or over time.

Advantages:

• Contributions qualify for a federal income tax deduction (when itemizing deductions) based on the fair-market value of contributed assets, subject to AGI limits (60% for cash and 30% for long-term appreciated assets).²
• Once funded, you have the flexibility to recommend grants over time while investments grow tax-free within the fund.
• A DAF simplifies charitable giving and recordkeeping.
• A DAF may offer benefits similar to a private foundation without the complex tax filing and distribution requirements.
• It may be more efficient to designate a DAF as the charitable beneficiary of your IRA, enabling the charitable entity to receive the donation in cash, provided that the DAF specifies the final charitable recipients.

Disadvantages:

• Contributions are irrevocable and cannot be returned to the donor.
• Grant recommendations are subject to approval by the sponsoring organization.
• Grant recipients must be qualified 501(c)(3)s.
• Investment and administrative fees may apply and reduce the amount available for grants.

Gifts of Non-Financial Assets

Donating an illiquid asset such as real estate, privately held business interests, or artwork can offer substantial tax savings and help donors contribute assets that may be difficult to manage or liquidate otherwise.

Advantages:

• It avoids capital gains tax on the sale of appreciated property while potentially allowing a charitable tax deduction.
• Non-financial asset donations can help to reduce both your taxable estate and facilitate pre-liquidity event planning (e.g., a business sale).
• Charitable deductions (when itemizing deductions) are typically limited to 30% of AGI, with a 5-year carryforward for excess amounts.

Disadvantages:

• In order to receive a tax deduction, a qualified appraisal is required along with the completion of IRS Form 8283 for non-cash gifts over $5,000.³
• Legal and tax expertise should be engaged before any transfer to charity of closely-held stock or real estate.
• IRS scrutiny and compliance requirements are higher for non-financial asset contributions.
• As described above, not all charities can accept non-financial assets due to administrative, legal, or liquidity limitations. Donors should contact the charity in advance to confirm acceptance policies, timelines for disposition, and any restrictions on use.

Charitable Remainder Trusts (CRTs)

A Charitable Remainder Trust is an irrevocable trust that provides income to one or more individual beneficiaries for life or for a specified term not to exceed 20 years, after which the remaining assets pass to charity.

Advantages:

• Potential for an immediate charitable deduction (when itemizing deductions) based on the present value of the remainder interest.⁴
• The trust pays an annuity stream to you or other named beneficiaries throughout its term.
• Capital gains taxes are deferred on appreciated assets sold within the trust. This provides a strategic method to diversify low-basis, concentrated stock positions while creating a tax-efficient income stream.

Disadvantages:

• The trust’s irrevocable structure limits flexibility once it is established.
• Income distributions are taxable, with treatment based on a tiered system (e.g., ordinary income, capital gains, tax-exempt income, and principal).⁵
• The trust requires legal and tax expertise to establish and administer, adding to overall cost and complexity.

Conclusion

A Strategic Charitable Giving Plan combines personal values with tax-efficient financial planning. The strategies outlined above can be utilized on a stand-alone basis or in various combinations to provide optimal tax benefits. Before proceeding with a significant charitable gift, you should develop a comprehensive financial plan that includes a detailed cash flow analysis. Careful planning with your wealth, tax, and legal professionals can ensure that your giving strategies align with both your charitable goals and overall financial objectives. Consult your Goelzer Wealth Advisor to learn more about the effective use of charitable giving strategies.

¹ IRS.gov, Notice 2024-80, 2025 Amounts Relating to Retirement Plans and IRAs, as Adjusted for Changes in Cost-of-Living, www.irs.gov/pub/irs-drop/n-24-80.pdf.

² Fidelity Charitable, “Charitable Planning Guide,” www.fidelitycharitable.org/content/dam/fc-public/docs/advisors/charitable-planning-guide.pdf.

³ IRS.gov, Instructions for Form 8283, www.irs.gov/pub/irs-pdf/i8283.pdf.

⁴ IRS.gov, Charitable Remainder Trusts, www.irs.gov/charities-non-profits/charitable-remainder-trusts.

⁵ Ibid.

DISCLAIMER: The information provided in this piece should not be considered as a recommendation to buy, sell or hold any particular security. This report includes candid statements and observations regarding investment strategies, individual securities, and economic and market conditions; however, there is no guarantee that these statements, opinions, or forecasts will prove to be correct. Actual results may differ materially from those we anticipate. The views and strategies described in the piece may not be suitable to all readers and are subject to change without notice. You should not place undue reliance on forward-looking statements, which are current as of the date of this report. The information is not intended to provide and should not be relied on for accounting, legal, and tax advice or investment recommendations. Investing in stocks involves risk, including loss of principal. Past performance is not a guarantee of future results.

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