Charitable Donations: An Opportunity for Tax Planning
Charitable donations can be a powerful tax-planning tool
For many taxpayers, charitable giving isn’t just an act of generosity—it’s also a powerful tax-planning opportunity. Whether donating cash, appreciated stock, supporting causes through your business, or making a Qualified Charitable Distribution (QCD), there are meaningful tax-saving benefits to supporting a favorite charity.
With major changes coming in 2026 under the One Big Beautiful Bill (OB3)—including new AGI-based thresholds for itemized deductions and a new charitable deduction for non-itemizers—now is a good time to review a few strategies to get the best return on your philanthropic investment.
Donate Appreciated Stock Instead of Cash
An effective strategy to support charitable organizations is donating appreciated securities directly. Many charities have the option to receive publicly traded stocks via a transfer of shares to the organization.
To qualify:
Stock must be long-term (held for 1 year or longer)
Shares must be transferred in-kind to a qualified non-profit organization
Benefits:
Avoid recognizing capital gains that would be realized if the stock were sold
Claim a charitable deduction equal to the fair market value (stock price based on average of high and low on donation date)
Deduction allowed up to 30% of AGI
Planning Considerations:
If client is going to donate cash to a charity but could substitute appreciated stock instead, they could choose to buy the stock and have a new cost basis value of the stock.
If client has capital losses, advise selling some stock positions to utilize the losses and donate some appreciated stock for amounts that would reset in taxable capital gains.
If the chosen charity cannot receive stock donations, or if the taxpayer wants to donate now and determine recipients later, a Donor Advised Fund (DAF) may be a better fit.
Donor Advised Fund (DAF) Option
A DAF allows taxpayers to make a large charitable donation in one year—claiming the deduction now—while giving funds to identified charities over time. A DAF is an account that many financial institutions have available to receive stock or cash donations, that can then be directed to other non-profit organizations in subsequent years or time periods. The payments from the DAF are not taken as charitable deductions as the taxpayers receive the tax deduction when making the contribution to the DAF.
Benefits:
Flexible contribution types can be made to a DAF, either cash or stocks.
If stock is transferred, donor avoids recognizing capital gains
Enables “bunching” donations to qualify for itemizing
Allows time to decide which specific charities to support
Tax Planning Considerations:
DAFs are ideal in income windfall years, such as Roth conversions, business sales, or taxable inherited retirement distributions.
For Business Owners: Shift Charitable Giving Into Business Deductions
If a client is a business owner, payments to charities may qualify for either a charitable deduction or business deduction. Business deductions are more favorable because they reduce AGI and may reduce self-employment tax for sole proprietors and partners.
This strategy is more fully discussed in this article by Tom Gorczynski: How to Shift Charitable Deductions into Business Deductions
To qualify, the business needs to demonstrate the payment serves a business purpose, in ordinary to qualify as an ordinary and necessary business deduction under §162 rather than a charitable contribution under §170.
Benefits:
Reduces taxable income, whether or not the taxpayer itemizes deductions
Not subject to charitable AGI limits
Lower AGI results in lower taxable income and the resulting tax
Use Qualified Charitable Distribution (QCD) if Age 70½+
A QCD allows eligible taxpayers to transfer directly from IRAs to qualified charities. Eligible taxpayers are those that are age 70½ or older, with pre-tax IRAs. The QCD amount is up to $108,000 in 2025, per eligible taxpayer.
Benefits:
The QCD amount does not count as taxable income
QCDs can satisfy the Required Minimum Distribution
Utilizing QCDs can result in lower AGI—for seniors that can save on taxes and Medicare premiums
This strategy should be considered for seniors that support charities but do not qualify to itemize deductions. Those taxpayers would benefit from excluding the IRA amount from taxable income and still support charities they care about.
Year-end 2025 vs 2026 Considerations
Under current law, charitable contributions are fully deductible when itemizing (subject to AGI limits). But starting in 2026, OB3 introduces a new hurdle:
OB3 Change: 0.5% of AGI Threshold
Beginning in 2026:
Taxpayers must exceed 0.5% of AGI in charitable giving before any charitable contributions are deductible for itemization purposes.
This effectively creates a “floor” similar to the medical expense threshold—donors who give modest amounts may see no deduction at all.
New Cash Contribution Deduction (Starting 2026)
OB3 also adds:
$1,000 deduction for single filers
$2,000 for married filing jointly
This deduction applies even if the taxpayer does not itemize, but only for cash gifts to qualifying charities.
Bunching Still Matters
The term bunching refers to concentrating multiple years’ worth of deductible expenses into a single year to exceed the standard deduction. Under OB3, this strategy continues to be important.
Taxpayers should consider:
“Bunching” charitable gifts every few years,
Combining donations with other large itemized expenses,
Alternating between itemizing and taking the standard deduction.
Advisors need to review the impact of the SALT (State and Local Tax) deduction limitations—which can reduce SALT to a maximum of $10,000 for high income taxpayers—to determine the impact of bunching strategies when planning.
Compliance Requirements: Avoiding Costly Mistakes
This is where many taxpayers lose in Tax Court—even when the charitable donation itself was legitimate. The IRS has strict rules for substantiation, and deductions can be denied when compliance is not met.
a. Recordkeeping Requirements
Keep bank record of donations - which may include canceled checks, bank statements, credit card receipts.
For non-cash gifts over $250, obtain a contemporaneous written acknowledgment from the charity.
For donations over $500, Form 8283 must be filed.
For non-cash contributions over $5,000, a qualified appraisal is required (with limited exceptions).
b. Contemporaneous Written Acknowledgment
Must include:
Amount donated or description of property,
Whether the charity provided any goods/services in return plus the value of those items,
The charity’s statement that the only goods/services were intangible religious benefits, if applicable,
Must be received by the time the return is filed.
c. Reporting on the Tax Return
Depending on the type of donation and amount, reporting may include the following items:
Schedule A - itemized deductions
Form 8283 - Noncash charitable contribution (signed by the recipient nonprofit, when applicable)
Copy of appraisal, if applicable, for donated property
Failure to meet the above requirements can result in disallowance of the charitable deduction for taxpayers. For a more detailed discussion on documentation, see this article from Jeremy Wells here: A Giving Tuesday Reminder: Document Your Donations.
Closing Summary
Charitable giving is a meaningful way to support the organizations and causes we care about—but it also offers powerful tax-planning opportunities when approached thoughtfully. Whether donating appreciated stock, leveraging a Donor Advised Fund, making QCDs, or strategically using business deductions, taxpayers can significantly enhance the impact of their generosity.
With changes coming in 2026 under OB3, proactive planning becomes even more important. Understanding the new AGI threshold, the expanded deduction for non-itemizers, and the continued relevance of bunching strategies will help ensure that charitable intentions translate into the maximum tax benefit.
Above all, remember that good documentation is essential. The IRS is strict, and missing paperwork can eliminate an otherwise valid deduction. A little organization today can go a long way toward maximizing tax savings tomorrow.
Thanks for reading! This post is part of a Giving Tuesday collaboration with other great tax experts writing on Substack. Please check out their publications if you haven’t already:
Tom Talks Taxes by Thomas Gorczynski, EA, USTCP
Josh & Taxes by Josh Youngblood, EA
Matt’s Tax Firm Insights by Matt Gaylor, EA
Financial Guardians by Brad Messner, EA
The Buzz about Taxes by Manasa Nadig, EA