Is Your Charitable Giving as Tax-Efficient as It Could Be?

In Brief:

Donor-Advised Funds let you donate appreciated investments, avoid capital gains tax, and still get a full deduction. You can choose later which charities receive the funds.
Qualified Charitable Distributions (QCDs) allow people 70½ and older to give directly from an IRA and reduce taxable income. This can count toward Required Minimum Distributions.
QCDs must go straight from your IRA custodian to a qualified charity. They can’t be used for Donor-Advised Funds or private foundations.
Starting in 2026, only charitable gifts above 0.5% of your AGI will be deductible. Smaller annual donations may no longer reduce your taxes.
High-income taxpayers will get a smaller tax benefit from donations beginning in 2026. Deductions are worth more in 2025 than in future years.
You may want to move some future giving into 2025 to maximize deductions before the new rules take effect. This “bunching” strategy can increase your tax savings.

Black Friday and Cyber Monday have come and gone, but if you are like me, your email inbox is full of emails from supported organizations reminding you about Giving Tuesday. Like any tax-minded professional, giving makes me think of some tax advantages. So, I wanted to take a quick moment to share a few thoughts on tax-efficient giving. This is not meant to be exhaustive or super complex (i.e., no charitable trusts or conservation easements are mentioned here), but instead is a set of steps to consider in the last month before your giving is locked in for the year.

Donor Advised Funds

The use of Donor-Advised Funds, or a DAF, is one of my favorite charitable strategies. To properly utilize a DAF, you will need to involve your tax professional and also your financial advisor. A DAF is a charitable vehicle that allows a taxpayer to donate appreciated securities for a fair market value charitable deduction.

When done properly, this provides a double benefit: you don’t have to pay tax on the capital gain, and you still get a deduction for the fair value. If you want to replace the securities you donated to the DAF with a new purchase of those securities, you can do that, too.

A donation to a DAF is irrevocable and no longer your money, as it is a true donation to the DAF. This is not a topic to be taken lightly; ultimately, you need to be sure you will not need the funds in the future.

Even though you make the donation to the DAF, you can still make recommendations to the DAF for distribution to public charities and religious organizations. This also makes distribution to the charity easier because the DAF will send a check instead of you sending securities, which the Treasurer of the church or charity will appreciate. Further, you can donate to the DAF now and then decide in the future which charities you ultimately want to receive the funds.

Qualified Charitable Distributions from your IRA

If you are of the age at which you need to take Required Minimum Distributions (RMDs) from your IRA and you are charitably minded, you really should consider Qualified Charitable Distributions (QCDs). In essence, a taxpayer who needs to take RMDs and also wants to support a charity should consider a QCD. Even if you have already taken your RMD for 2025, you may want to consider it for 2026.

When done effectively, you can avoid taking your RMD and increasing your taxable income by making a QCD from your IRA directly to a charitable or religious organization. Obviously, you don’t want to make a QCD if you need the cash from your RMD, but there is a particular profile of a taxpayer who could really benefit.

The ideal profile is someone who:

Needs to take an RMD and has met the age of 70 ½ before the date of the distribution
Has a traditional or inherited IRA (not from a SEP IRA or SIMPLE IRA)
Does not need the cash from their RMD
Is charitably inclined and wants to support a charity or religious organization

Additionally, if someone does not itemize their deductions, there is little advantage to charitable giving, so this may maximize the QCD benefit.

The 2025 annual QCD limit is $108,000 per individual. If married, both spouses can make a QCD. Additionally, remember that each charitable recipient must be a qualified public charity, church, etc., to receive the QCD. Even though I mentioned DAFs above, you cannot make a QCD from your IRA to a DAF or private foundations.

Another item to remember is that the QCD needs to be a direct transfer from the IRA to the charity. Your financial advisor needs to be involved with the QCD generally.

Future Charitable Contribution Limit

Starting in 2026, taxpayers will have a floor to get over before a charitable contribution is deductible. Only the portion of charitable contributions that exceed 0.5% of Adjusted Gross Income (AGI) is net deductible starting in 2026.

As an example, starting in 2026, if a taxpayer has AGI of $500,000, the first $2500 of contributions will not be deductible and only donations above $2500 will be deductible for federal tax purposes.

The planning opportunity you may want to look into is whether you want to stack contributions from 2026 into 2025, since 2025 does not have the 0.5% limitation. By doing this, you may be moving contributions that are not deductible to be deductible contributions.

Further, high-income taxpayers will see another limitation: someone in the 37% income tax bracket will only get a 35% benefit starting in 2026. This effectively makes donations more valuable in 2025 than in 2026. This can make the DAF strategy above even more valuable.

These two items are especially important for those who may have increasing income in 2026 and, therefore, may have a higher non-deductible contribution floor. Again, this is an area that should be discussed with your tax professional before year-end.