Philanthropy can make a difference in your community (and beyond), and it may make a positive difference in your tax bill too. Understanding the tax benefits that come with different charitable giving strategies helps you stretch your charitable dollar while enjoying financial advantages. Here’s a closer look at some key tax planning strategies.
Donating Appreciated Assets (Instead of Cash)
When many people think of charitable giving, they imagine making cash donations. Donating cash may come with some tax benefits (in many cases, your donation is tax-deductible), but the benefits are far greater if you donate appreciated stocks or other assets instead.
This approach has two key tax benefits for you:
- It eliminates the capital gains tax you’d otherwise have to pay on the investment.
- It allows you to deduct the fully appreciated value of the asset.
The charity you choose also receives the fully appreciated value of the asset.
Creating a Charitable Trust
Charitable trusts can offer many tax benefits, although the exact benefits vary based on the type of trust. One of the most common is the charitable remainder trust (CRT).
A CRT is a trust with tax benefits for you and a charity of your choice. Once you open the trust and fund it, you receive a partial tax deduction. The deduction is a partial one because you or a beneficiary will receive payments from the trust before the assets go to a charity.
For a certain period (usually for a set interval or for the remainder of your lifetime), you or a selected non-charitable beneficiary will receive a regular income stream from the trust. At the end of that period, the remainder of the funds in the trust will go to the charity you’ve chosen.
Starting a Donor-Advised Fund (DAF)
If you’re interested in long-term charitable giving and also want to reap immediate tax benefits, you might consider a donor-advised fund (DAF). With a DAF, you create a charitable giving account and fund it. You receive an immediate tax deduction.
Once you’ve transferred funds into the account, you don’t technically have control over them. However, you may make “recommendations” for grants to selected charities over time.
Satisfy Your RMD With a QCD
Once you reach age 73, you typically must begin taking required minimum distributions (RMDs) from tax-advantaged retirement accounts like these:
- 401(k)s
- Traditional IRAs
- 403(b)s
- 457(b)s
- Simplified Employee Pension (SEP) IRAs
- Savings Incentive Match Plan for Employees (SIMPLE) IRA
RMDs are taxed as ordinary income, and if your distribution bumps you into a higher tax bracket, you could end up owing far more on your tax bill than you anticipated. The tax benefits of QCDs may help you avoid paying the IRS more than you need to.
A QCD (qualified charitable distribution) can satisfy your annual RMD without incurring any income tax. To make a QCD, you transfer funds directly from a traditional IRA to a qualifying charity.
Bunch Your Charitable Donations
Tax season is full of decisions. If you’re right under the standard deduction ($15,750 for single taxpayers and $31,500 for married couples in 2025; $16,100 and $32,200, respectively, in 2026), “bunching” your charitable contributions for multiple years into one year may push you over the threshold and help you save money.
Need Help Navigating Tax Benefits?
Philanthropy is an honorable pursuit. And if you can reap tax benefits while making a difference in the lives of others, our team is here to help you do so.
At Emerj360, we aim to create a customized financial plan that’s fully aligned with your goals. If you have questions about tax planning or want to get in touch with our financial coaches, contact us online today.
To schedule a meeting, call 833-637-5360 or book online here.
Frequently Asked Questions About Charitable Giving Tax Benefits
1. What are the main tax benefits of donating appreciated assets instead of cash?
Donating appreciated assets, such as stocks, provides two major tax benefits: you can deduct the full market value of the asset and avoid paying capital gains tax on its appreciation. This allows you to maximize both your charitable impact and your potential tax savings.
2. How can charitable trusts and donor-advised funds provide tax benefits?
Both charitable trusts and donor-advised funds (DAFs) offer unique tax benefits. A charitable remainder trust lets you claim a partial tax deduction and receive income payments before the remaining assets go to charity. A DAF provides an immediate tax deduction when you fund the account, while allowing you to recommend grants to charities over time.
3. What tax benefits come from using a qualified charitable distribution (QCD)?
The tax benefits of a QCD include satisfying your required minimum distribution (RMD) without paying income tax on the withdrawn amount. By transferring funds directly from your IRA to a qualifying charity, you can reduce taxable income and potentially stay in a lower tax bracket.
