Charitable Giving: Simple Year-End Planning Strategies

Americans donated $593 billion to charity in 2024, which was 6.3% more than in 2023, according to the National Philanthropic Trust.¹ This shows that charitable giving continues to be important to many households, even though fewer Americans are donating compared to past years. As shown in the chart, household wealth has grown steadily as the economy and stock market have expanded. Higher income and wealth, combined with changes to tax laws, have created new reasons to give.

Charitable giving also matters for estate planning, which is how you plan to distribute your assets after you pass away. Assets left to charity don’t face estate tax, which is a tax on the transfer of wealth after death. This makes charitable gifts in your will an efficient way to lower estate tax while supporting causes you value. For people with large estates that might face estate tax, combining gifts during your lifetime with charitable gifts in your will can significantly lower the tax burden on your heirs.

Most importantly, charitable giving can help create a lasting legacy, strengthen family values across generations, and reduce taxes during your lifetime. For many families, giving becomes a way to include children and grandchildren in important conversations about values and responsibility. The challenge for investors is that while wanting to give is simple, finding the best approach takes careful planning.

When and how you give matters more now

The OBBBA has created important changes for charitable giving. Most notably, it increased the number of people who can itemize their tax returns. This happened because it raised the state and local tax (SALT) deduction cap from $10,000 to $40,000. Itemizing means listing your deductions individually on your tax return instead of taking a standard deduction amount. Since you can only deduct charitable contributions if you itemize, this change makes charitable giving more valuable for tax planning today.

Additionally, there’s a limited window from 2025 through 2029 to make the most of the timing and structure of your gifts. Starting in 2026, the OBBBA introduces a minimum threshold for charitable deductions for people who itemize. This threshold is 0.5% of your adjusted gross income (AGI), which is essentially your total income minus certain adjustments. This means only the portion of charitable gifts above 0.5% of your AGI will be deductible. For example, if someone has $200,000 in AGI, only donations above $1,000 (0.5% of $200,000) would be deductible.

One approach some investors use to address this challenge is called “bunching.” This means combining multiple years of giving into a single tax year to exceed the deduction threshold. This strategy has become more popular since the 2017 Tax Cuts and Jobs Act nearly doubled the standard deduction, which reduced the number of households that itemized.

Another important consideration is deciding which assets to donate. For example, gifting stocks or other investments that have increased significantly in value offers three key tax benefits: it avoids capital gains tax from selling the investment outright, removes future growth from your taxable estate, and provides a deduction on your regular income. For regular income deductions, you should consider whether the charity is public or private and what your estimated AGI is. This “triple benefit” can be especially attractive during years with significant investment gains, such as when stock compensation becomes available or after selling a business, and when you don’t have losses to offset the gain.

Including charitable giving in your portfolio rebalancing can also improve efficiency. Rebalancing means adjusting your investment mix to maintain your target allocation. Some investors prioritize gifts of investments that have grown in value from taxable accounts, then buy back those investments in tax-deferred retirement accounts. This approach can maintain your desired investment mix while maximizing tax benefits.

Common ways to structure charitable giving

Different charitable giving options serve different purposes, and selecting the right one depends on your specific situation and goals. Here are some common examples, though this isn’t a complete list:

Donor-advised funds (DAFs) have become very popular, with assets exceeding $250 billion.¹ DAFs work like charitable investment accounts: you make a contribution, receive an immediate tax deduction, and then suggest grants to charities over time. The funds can be invested and grow tax-free while you decide on the timing and recipients of your gifts. DAFs are especially valuable in years when maximizing deductions is important.

Under the new tax rules, donors can structure DAF contributions to ensure they exceed the 0.5% AGI threshold described earlier. DAFs are also simpler than other options, making them accessible to more donors.

Qualified charitable distributions (QCDs) are another option for those aged 70½ or older with traditional IRAs. IRAs are individual retirement accounts. QCDs allow you to transfer up to $108,000 for tax year 2025 directly from your IRA to charities. This can satisfy required minimum distribution (RMD) rules, which are mandatory withdrawals from retirement accounts, while excluding the amount from taxable income. QCDs provide tax benefits whether you itemize or not, so they can be valuable in years when itemizing is less beneficial.

Charitable remainder trusts (CRTs) provide another option to support charitable causes as part of estate planning. With a CRT, you transfer assets into a trust that pays income to beneficiaries for a specific period, with the remainder going to charity. A trust is a legal arrangement where assets are managed by a trustee for the benefit of others. This can be especially useful for investments that have grown significantly in value, since the trust can sell them without you paying immediate capital gains taxes.

As with any trust arrangement, care should be taken with the structure. For example, certain retained powers could cause the asset to be included in your taxable estate. Additionally, naming beneficiaries other than yourself or your spouse could trigger a gift tax.

For those fortunate enough to have substantial assets and long-term giving goals, additional considerations may include:

• Private foundations, which offer maximum control and family governance structures but come with higher administrative requirements, minimum distribution rules, and taxes on investment income

• Charitable lead trusts, which provide income to charity for a period before assets pass to heirs

• Supporting organizations, which work closely with specific public charities

• Pooled income funds offered by certain charitable institutions

These examples represent some of the most common charitable giving options, but there are additional approaches and variations that may be appropriate depending on your specific situation. Working with a trusted advisor can help determine which approach best fits your goals.

Charitable giving as part of your overall financial plan

The most effective charitable planning includes giving as part of your broader financial strategy rather than treating it separately from other financial decisions. This comprehensive approach considers how charitable giving connects with investment management, tax planning, retirement income, and estate planning.

Perhaps most importantly, involving children and grandchildren in charitable decision-making creates opportunities to discuss what matters most to your family, why certain causes deserve support, and how to evaluate whether nonprofits are effective. These conversations can be among the most meaningful aspects of wealth planning, helping ensure that your family’s values and sense of responsibility continue across generations.

The bottom line? With year-end approaching and new tax rules creating both opportunities and considerations, it’s important to optimize when, how, and through what means you make your charitable gifts. This can help maximize both the impact of your giving and your financial outcomes.