Give what you meant to give, at the lowest cost.
Most people give the least efficient asset they own, out of the least efficient account, in the least efficient year. The intent is right; the mechanics leave money on the table.
Charitable planning does not start with how much to give. It starts with which dollar to give, from where, and when, because for the same cost to you the charity can often receive more, and for the same gift to the charity the cost to your plan can often be less.
Cash is usually the wrong asset
Donating cash means you have already paid tax on it, or will. Donating a security you have held longer than a year and that has appreciated substantially works differently: the charity, being tax-exempt, can generally sell it without paying capital gains, and you are generally able to deduct the value rather than what you paid. The embedded gain, which would have cost you on a sale, simply never gets taxed.
The same logic runs in reverse for what you should not give. A holding sitting at a loss is usually better sold, realising the loss for your own return, with the proceeds donated.
Giving straight out of a retirement account
Once you reach the eligible age, a qualified charitable distribution moves money directly from an IRA to a qualifying charity. It never appears in your income at all, which is a stronger outcome than a deduction, because income you never recognise cannot push you into a higher bracket, increase the taxable portion of your Social Security, or raise a Medicare premium two years later.
For anyone subject to required minimum distributions who is also giving anyway, this is frequently the single most efficient way to do both at once. It has strict rules: the transfer must go directly to the charity, only certain recipients qualify, and there is an annual limit that is indexed and changes.
Choosing the year, not just the amount
Because the standard deduction is high, many households give generously and receive no tax benefit at all because their total itemised deductions simply never clear the threshold in any single year. Concentrating several years of intended giving into one year can clear it, and a donor-advised fund lets you do that without forcing the charities to absorb an irregular flow: the deduction is taken in the year the fund is financed, and grants are recommended out of it over time.
The years worth targeting are usually the unusual ones: a business sale, a large Roth conversion, an exercised option, a final year of high earnings before retirement.
When the gift has to produce income first
Charitable remainder trusts exist for the case where an asset is highly appreciated, illiquid, or both, and you need income from it during your lifetime while still directing what remains to charity. They are irrevocable and they carry real complexity, cost and administration. They earn their place in a narrow set of circumstances and are a poor fit outside it.
This is distinct from our own giving commitment: the philanthropy partnership is how the firm gives, not a planning strategy for your assets.
Every technique here is a mechanism, not a reason. The plan establishes what you can afford to give without putting your own security at risk; only then is it worth asking which structure delivers that gift most efficiently. Generosity that destabilises the plan helps nobody, including the charity that was counting on the next gift.
- Internal Revenue Service, Publication 526, Charitable Contributions: deductibility, limits and substantiation. View source ↗
- Internal Revenue Service, Publication 561, Determining the Value of Donated Property. View source ↗
- Internal Revenue Service: qualified charitable distributions from individual retirement arrangements, including eligibility age and the indexed annual limit. View source ↗
- Internal Revenue Service: charitable remainder trusts. View source ↗
- Internal Revenue Service, Tax Exempt Organization Search: verifying that a recipient qualifies. View source ↗
Figures are as of the period stated by each source and are subject to change. Statistics describe populations and are presented for education only; they are not a projection of any individual result.
Other Side Asset Management does not provide legal or tax advice and does not draft legal documents. The information on this page is general and educational; tax law and benefit rules change, and their application depends entirely on your circumstances. Coordinate any decision described here with your attorney and CPA. Contribution limits, the qualified charitable distribution age and annual cap, and deduction thresholds are set by the Internal Revenue Service and are indexed or amended from period to period; confirm the current figures at the IRS source before acting. Charitable trusts are irrevocable and must be drafted by a qualified attorney.
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