Tips for Getting the Most From Your Charitable Giving

For those who qualify, giving money to charity can be a great way to cut your tax bill—while also accomplishing some good in the world. 

In the last few years, however, claiming a tax deduction for what you give away has become a lot harder. That’s because a 2017 law significantly raised the standard deduction, the amount that all taxpayers can automatically claim against their income. 

While the new law led to lower tax bills for many Americans, it also eliminated the need for many people to tally up their individual donations and other expenses, known as itemized deductions. That means that today the number of taxpayers claiming charitable donations each year is about 1 in 10, compared with 1 in 3 before the new law. 

Lowering your federal taxable income with charitable giving isn’t always feasible, yet there are still ways to increase your chances of getting a tax benefit, experts say, especially if you plan ahead. Here are four strategies.

1. Donate physical property

To claim any charitable donation as a deduction, you need to have itemized deductions that total more than your standard deduction. In addition to charitable giving, common itemized deductions include state and local taxes up to $10,000, mortgage interest and major medical expenses. You can find a full list on the IRS website. 

For a single tax filer in 2022, the standard deduction is $12,950. The threshold can be hard to meet through cash giving alone, so if you have physical property you’re not looking to sell—such as the contents of a deceased family member’s home or an old storage unit—consider donating the items.

There are around 1.7 million tax-exempt organizations registered with the IRS—you can check an organization’s status using this tool. Most will advertise on their own websites as either 501(c)(3) organizations or nonprofits. Delays from the pandemic, the IRS says, mean some newer charities may not be in the system yet.

If you’re donating noncash property such as household items, art, clothing or jewelry, or even something bigger like a car, you will need receipts. The organization you donate to should be able to estimate the value of your donation, but for gifts larger than $5,000, you’ll also need a professional appraiser to verify the value of the items.

2. Donate stock

Many experts say donating stock that’s gained value since it was purchased is a strategy commonly used by higher net worth people, but anyone can do it. 

Adam Nash, a co-founder of Daffy, a nonprofit that helps people make charitable donations, says, “If you have boring shares of an index fund you’ve held for 10 years, you can donate a few of those shares and save a lot of money” on capital-gains taxes.

The process for donating stock is simple. Contact the charitable organization to get their account information and then find out what your investment firm needs from you to complete the transfer. 

The first benefit of donating stock is that you get a tax deduction worth the value of your donation. If you’ve held the investment for longer than a year, you also avoid paying capital-gains tax when you donate the stock instead of selling it. 

For example, say you buy 10 shares of a company’s stock for $1,000. Two years later, the value of the 10 shares has risen to $2,500. If you sell the shares, you’ll have to report $1,500 in capital gains on your tax return, and could be subject to taxes as high as 20%, depending on your income. Donating the stock instead wipes away the tax liability, and if you’re itemizing, would give you a $2,500 charitable donation to report.

3. For retirees: Donate money from your retirement account

An IRS rule says people have to start taking money out of certain retirement accounts the year after they turn 72 (or 70 1/2 if they reached that age before Jan. 1, 2020). Most of these withdrawals—known as required minimum distributions, or RMDs—are considered income.

If you don’t need the cash, you can redirect up to $100,000 each year from your IRA with what is known as a qualified charitable deduction or QCD, says Rob Burnette, a financial advisor and chief executive of Outlook Financial Center in Troy, Ohio.

While you don’t get a tax deduction for the donation, you avoid paying income taxes on the amount you donate, Burnette says, since the money never goes into your own pocket. It’s an especially helpful loophole in high-income years and can even lead to a lower Medicare premium, he says, since that’s based on income.

But execution can get complex, says Andrew Latham, a certified financial planner based in Rolesville, N.C., and content director at the financial website SuperMoney. “For this strategy to work you do have to meet some stringent requirements,” he says, “so it’s smart to talk to your accountant or advisor first.”

4. Bundle donations through a donor-advised fund

Grouping your gifts to charity into one year, rather than donating smaller amounts annually, might push your itemized deductions above the standard deduction during the tax year when you make the donations.

One way to do this and still dole out the money to the organizations over time is through a donor-advised fund. These increasingly popular accounts allow you to make a contribution—in cash, stocks, mutual fund shares or even cryptocurrency—and get an immediate tax deduction. Then you get to decide, now or later, where you want the money donated. Meanwhile, your contribution can be invested and grow without tax consequences.

“This is an outstanding tax planning tool for those looking to maximize tax savings while still participating in deliberate charitable giving,” says H. Randy Hughes III, an accountant and the owner of Counting Pennies, an accounting firm that operates nationwide.

Some public charities and religious organizations operate their own donor-advised funds, but their slate of donation recipients may be limited. 

For broader access, consider the donor-advised funds offered by Vanguard, Fidelity and Schwab. These accounts do come with varying administrative fees, donation minimums and investment expenses, so it’s wise to comparison shop.