Maximizing the Tax Benefits of Charitable Giving

Annrose Isaac CPA, CFP®, MBA
Annrose Isaac CPA, CFP®, MBA
charitable giving and tax benefits

Recent changes in income tax laws have made it even more important for you to be strategic with your charitable giving during the year so that you can maximize tax benefits while supporting your favorite charities. As you contemplate gifts to your favorite charities in 2020, keep in mind that strategizing early in the year may allow you to take advantage of several methods for maximizing your tax savings. Here are a few tax-wise methods for charitable giving that you may be able to take advantage of depending on your financial circumstances.

You may be able to realize significant tax savings by “bunching” several years of charitable contributions in one year rather than spreading those contributions out over multiple years. Talk to your Financial Advisor if you plan to donate to charities every year so that you can determine if bunching your charitable donations will generate meaningful tax savings.

Maximizing Tax Benefits & the “Bunching Strategy”

The bunching strategy is even more effective when larger charitable contributions are made in higher income years, such as the year before retirement or the year when there is substantial business income. The tax savings from this strategy can be enhanced further by donating assets that have increased significantly in value from the date you originally purchased them. For example, you don’t need to sell stock and donate the cash proceeds in order to obtain a charitable deduction for the current value of stock. Selling appreciated stock so you can donate cash to charity creates unnecessary taxable gains because you may have purchased that stock for a much lower price.

Instead, you can simply donate the shares of stock directly to the charity. You will be entitled to claim a charitable deduction for the market value of the stock as long as you have owned the stock for at least a year.  You can better manage your income tax liabilities for the year by not generating unnecessary taxable gains. Before you donate stock, check with the charity to make sure it has a brokerage account to receive the stock and that it can provide appropriate accounting of the shares of stock received. You will need appropriate written acknowledgment from the charity in order to claim the charitable deduction on your tax return. But, what if your favorite charity can’t accept non-cash donations?

Charitable Giving: Setting Up a Donor Advised Fund Account

You can consider setting up a Donor Advised Fund (DAF) account if you are concerned about giving outsized charitable gifts to your charity in a single year or if you find out that your favorite charity is not set up to receive a non-cash donation. A DAF account is a separate investment account that is managed by a sponsoring charitable organization such as Schwab Charitable or Fidelity Charitable. You are eligible to claim a charitable deduction in the year that you donate cash or appreciated assets to your DAF account. Rather than giving large sums directly to individual charities in one year, you can instead make the donation to your DAF account. The DAF will sell any non-cash assets it receives but the gains generated by the sale of appreciated assets within a DAF account will not have to be reported on your tax return.

Additionally, you retain the right to manage the cash funds inside the DAF account and to direct the ultimate distribution of cash out of your DAF account to eligible charities. The right to control the ultimate distribution of cash from your DAF account allows you to sprinkle cash donations to charities over several years rather than giving large amounts of cash to any one charity in a given year. You can rest assured knowing that the organization sponsoring your DAF account has experience with gifts of non-cash assets and will send you the necessary documentation to substantiate your charitable gifts. Therefore, the use of a DAF account also eliminates the burden of obtaining relevant documentation from smaller individual charities that may not be staffed appropriately to account for gifts of non-cash assets. Next, let’s talk about Restricted Stock Unit Grants.

What’s a Restricted Stock Unit Grant? 

Employees who receive stock compensation as part of the employment agreement could also donate stock that they receive through Restricted Stock Unit (RSU) grants or stock option exercises. Such donations require careful selection of the shares donated in order to maximize the tax savings. Your Financial Advisor can assist you with selecting the correct shares to donate.

If you are over the age of 70.5 years of age, you have an additional tool at your disposal for tax-wise charitable giving. You can use a Qualified Charitable Distribution (QCD) to donate up to $100,000 every year directly from your IRA to an eligible charity. Normally, distributions from your IRAs are counted as taxable income and lead to an increase in taxes owed. QCDs, on the other hand, do not count as taxable income and therefore do not lead to an increase in taxes owed even though they do satisfy the requirement that IRA owners over a certain age (age 70.5 or age 72) take out a minimum distribution from their IRAs annually. Using QCDs may allow you to maintain your income below the threshold levels necessary to keep your Medicare premiums low and also to reduce the amount of Social Security benefits that becomes taxable.

Be Proactive About Your Charitable Giving

Proactively providing guidance on tax reduction strategies throughout the year is just one of the services provided by Wade Financial Advisory, Inc. Contact us to learn more about how WFA can partner with you to grow and protect your wealth.

This communication contains the opinions of Wade Financial Advisory, Inc. about the securities, investments and/or economic subjects discussed as of the date set forth herein. This communication is intended for information purposes only and does not recommend or solicit the purchase or sale of specific securities or investment services. Readers should not infer or assume that any securities, sectors or markets described were or will be profitable or are appropriate to meet the objectives, situation or needs of a particular individual or family, as the implementation of any financial strategy should only be made after consultation with your attorney, tax advisor and investment advisor. All material presented is compiled from sources believed to be reliable, but accuracy or completeness cannot be guaranteed. PAST PERFORMANCE DOES NOT GUARANTEE FUTURE RESULTS. INVESTMENTS BEAR RISK INCLUDING THE POSSIBLE LOSS OF INVESTED PRINCIPAL.

Wade Financial Advisory, Inc. is an investment adviser registered with the Securities and Exchange Commission. Registration of an Investment Advisor does not imply any level of skill or training. A copy of current Form ADV Part 2A is available upon request or at Please contact Wade Financial Advisory, Inc. at (408) 369-7399 with any questions.

There's no time like the present

Contact us today to speak to one of our trusted advisors and learn how our team can partner, educate, and guide you on your path to financial confidence.

couple-aqua-phone copy

Let's keep in touch

  • This field is for validation purposes and should be left unchanged.