It can feel good to give money to a charity and support a cause you care about. You may feel even better if you get an income-tax deduction for your contribution.
But you can only deduct charitable contributions if you itemize your deductions, and fewer people have been itemizing since the standard deduction nearly doubled in 2018.
[Read: The Pros and Cons of Standard vs. Itemized Tax Deductions]
People who take the standard deduction won’t get a tax break by writing a check to a charity.
“Writing a check is fine, but it’s not always the most tax-efficient way to do things,” says Mark Gallegos, certified public accountant and and tax partner at Porte Brown LLC in Chicago and member of the Illinois CPA Society.
However, there are other ways to get tax benefits from your charitable gifts — you just need to put forth a little more effort. These four strategies can help you reduce your taxes while supporting your favorite charities.
Giving Appreciated Stock and Other Investments
Rather than giving cash to a charity — either by writing a check or making a contribution with your credit card or directly from your bank account — consider giving appreciated stock, mutual funds or other investments you hold in a taxable account.
As long as the charity is eligible and you’ve held the investment for more than one year, you could get a double benefit: If you itemize, you can deduct the value of the investment on the date you make the gift.
And even if you don’t itemize, you can avoid paying capital gains taxes on the increase in value since you acquired the asset — which you’d owe if you sold the investment instead.
[READ: Profit and Penalty: The Financial Impact of Rising Capital Gains Taxes]
“If someone identifies an investment that no longer fits in their portfolio, donating it to charity is the most tax-efficient if it has significant gains,” says Brian Schultz, a CPA and tax partner with Plante Moran Wealth Management in the Southfield, Michigan, office. “You get the deduction, and you avoid having to pay the capital gains by selling it to get out of your portfolio.”
For example, if you invest $1,000 in Stock A and the value rises to $3,000 after a year or more, you’ll have to pay capital gains taxes on the $2,000 increase if you sell the shares — at rates as high as 20%, depending on your income.
But if you give the shares to charity, you avoid that capital gains bill. If you itemize your deductions, you can also deduct the $3,000 gift to charity.
Contact your brokerage firm and the charity to find out about the best procedure for giving the stock or mutual fund shares. Not all charities are equipped to accept donations of investments.
Contributing to a Donor-Advised Fund
Donor-advised funds are offered by brokerage firms, banks and community foundations, and they separate the timing of the tax break and the charitable gift: Your deduction is based on the date you contribute the money or assets to the donor-advised fund if you itemize, but then you have an unlimited amount of time to decide which charities to support.
“The donor-advised fund allows you to capture that deduction when you need it and support the charities on your own timetable,” says Brandon O’Neill, a certified financial planner and charitable planning consultant with Fidelity Charitable, the largest donor-advised fund.
In addition to donating cash, donor-advised funds make it easy to give appreciated stock, mutual funds and other investments.
In 2023, 63% of contributions to Fidelity Charitable were in the form of noncash assets, such as stocks. Some donor-advised funds accept more complicated assets, too.
In 2023, Fidelity received $1.4 billion in contributions of nonpublicly traded assets, such as restricted stock, private equity and limited partnership interests. “We have five attorneys on staff that help with gifting illiquid and nonpublicly traded assets, like an interest in an LLC or S corp,” O’Neill says.
Giving to a donor-advised fund can be especially helpful if you have a windfall that would otherwise boost your taxable income. You can give some of the appreciated assets to a donor-advised fund and get a tax deduction for the year, but you don’t have to give the money to the charities all at once.
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“It fits well in a year when you have a windfall,” says Brian Kearns, CPA, CFP, founder of Haddam Road Tax and Consulting and co-chair of the Illinois CPA Society’s Personal Financial Planning Group. “That’s another way you can plan out your giving and take advantage of the tax code along the way.”
The donor-advised fund sells the assets, and then the money grows in the fund’s investment pools (you may have a choice of several mutual funds) until you recommend the grants to the charities.
You can usually give money from the donor-advised fund to any eligible 501(c)(3) charity, with grants as little as $50 (or $500 for some donor-advised funds) and up to tens of thousands of dollars or more. You may need to make at least one grant every two years. Most donor-advised funds provide resources to help you research the charities.
“When people put the money aside in these accounts, it’s like a ready reserve for future giving,” O’Neill says. When the hurricanes devastated so much of the Southeast earlier this year, they were ready to give quickly.
These funds have many of the same benefits as private foundations, but with much lower costs and complexities. Fidelity Charitable and Schwab Charitable, for example, no longer have a minimum initial contribution requirement to open a donor-advised fund. Vanguard has a $25,000 minimum to get started.
“A donor-advised fund is a great tool, especially if you plan on making multiple donations,” says Nilay Gandhi, a CFP and senior wealth advisor with Vanguard. “It’s a wonderful mechanism to be able to help with estate planning, tax planning and charitable giving.”
Use Donor-Advised Funds as a Teaching Moment
Some families use donor-advised funds to teach their kids and grandkids about philanthropy. Fidelity Charitable offers a Gift4Giving program that lets you designate $50 to $10,000 in the donor-advised fund for a relative or friend to make the grants to a charity of their choice.
“I worked with a family where the patriarch sat down at Thanksgiving and said each kid is going to get a couple hundred dollars in Gift4Giving, and then we’re going to sit down during the Christmas holiday and talk about which charity you gave to and why,” O’Neill says.
Bunching Your Contributions
In 2024, the standard deduction is $14,600 for single tax filers, $29,200 for joint filers, and $21,900 for people filing as head of household. Single taxpayers age 65 or older get an extra $1,950, and each married taxpayer 65 or older gets an extra $1,550.
If your itemized deductions are less than those numbers, you’d take the standard deduction rather than itemize — and wouldn’t be able to deduct your charitable contributions.
As it gets close to the end of the year, add up your expenses that would count toward itemizing, including state and local taxes (up to $10,000), mortgage interest, unreimbursed medical expenses (above 7.5% of your adjusted gross income) and eligible disaster losses. See IRS Schedule A, Itemized Deductions, for more information.
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If you’re close to the cutoff, consider making extra contributions to charity this year rather than next year — a strategy experts call “bunching.”
“Any time they find themselves in a higher-than-normal income year, I think the bunching strategy works best,” O’Neill says.
For example, you may want to give larger charitable contributions in a year when you receive a bonus at work or sell a business, when you can benefit even more from the deduction.
Bunching can work well with a donor-advised fund since you can get the tax break in the year you make the contribution but you can grant the money to charities over several years.
Giving From Your IRA
If you’re age 70 ½ or older, you can give up to $105,000 directly from your IRA to a charity tax-free in 2024.
This is called a qualified charitable distribution (QCD) and it counts as your required minimum distribution — the amount you have to withdraw from a traditional IRA each year after you turn age 70 ½ to 73 (depending on your birthdate).
However, it’s included in your adjusted gross income, which gives you a tax benefit even if you don’t itemize. “You satisfy your RMD without increasing your taxable income,” Gallegos says.
Otherwise, the withdrawals from a traditional IRA would be taxed as ordinary income.
“For most people, all of the IRA will be taxable,” Schultz, the Michigan CPA, says. “This is a way to diffuse some of the tax time bomb.” Keeping the money out of your adjusted gross income can also help you qualify for other tax breaks based on the lower income level.
Contact your IRA administrator and the charity before making the donation. The money must go directly from the IRA to the charity to count; you can’t cash it out first.
“The IRS requires that the check be payable to the charity,” Gandhi says.
But you can have the administrator send you the check that is made out to the charity, so you can send it to the charity along with a note and the address where the charity should send your receipt.
Donating Noncash Items
If you’re itemizing your deductions, consider additional ways to boost your charitable contributions.
You can deduct the fair market value of noncash items you give to charity, such as used clothes, furniture and household goods based on the price they would sell for in their current condition, Gallegos says.
You can check thrift store prices or use a valuation guide from a charity for help, such as Goodwill or the Salvation Army.
Gallegos recommends taking a picture of the items for your records, in addition to getting a receipt from the charity. If the items are worth $250 or more, you must keep a written acknowledgement from the charity in your tax records.
“If it’s under $250 you don’t need written acknowledgement, but I always say track it,” he says. For noncash donations of $500 or more, you must submit IRS Form 8283 with your tax return. And for items valued over $5,000, you need a qualified appraisal. For more information, see IRS Publication 526 Charitable Contributions.
If you do any driving while volunteering for a charity — like making deliveries for Meals on Wheels — you can deduct 14 cents per mile. That seems small, but it can add up if you’re organized, Kearns, the Illinois CPA and financial planner,says. He uses an app that tracks mileage, and specifies which miles are for charity and which are for business.
How to Check Out a Charity
You can look up an organization’s eligibility to receive tax-deductible contributions by using the IRS’s Tax Exempt Organization Search Tool.
You can learn more about the charities and how they use their money at Charity Navigator, Give.org and GuideStar. You’ll need to register to get more detailed information at GuideStar, but several donor-advised funds provide access for account holders.
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Guide to Deductions for Charitable Donations originally appeared on usnews.com
Update 12/24/24: This story was published at an earlier date and has been updated with new information.
