The advantages of a charitable giving strategy

By Joseph M. Dionisio, CFP®, Senior Wealth Strategist I Citizens Private Wealth

Charitable giving is an opportunity to express your values and make a meaningful difference in the world. Whether you're passionate about environmental restoration, education or the arts, charitable giving allows you to support the causes that matter most to you.

While careful consideration goes into selecting your charities, it's also important to be financially strategic to maximize the impact of your gift. Beyond your own personal fulfillment, charitable giving can provide practical financial benefits to you, such as reducing taxable income, lowering estate tax exposure or even providing income during retirement through certain vehicles.

The key is to understand the financial and tax implications of charitable giving and the options available to execute your strategy.

Tax deductions and estate planning considerations

Donating cash, assets or property to eligible charities may reduce your taxable income. Before exploring strategies, it's important to understand the current standard deduction amounts.¹

Standard deduction for 2025 and 2026

For qualifying individuals aged 65 and older, there is an extra amount that can raise your standard deduction:²

Additionally, from 2025 through 2028, taxpayers aged 65 and older can claim an additional $6,000 deduction per qualifying individual ($12,000 for spouses filing jointly), subject to income phase-outs. This deduction is available whether you itemize or take the standard deduction.³

Charitable giving for itemizers and non-itemizers

Starting in 2026, taxpayers may claim up to a $1,000 above-the-line deduction ($2,000 for joint filers) for qualified cash donations even if they take the standard deduction.⁴ Beyond this provision, benefiting from charitable deductions generally requires itemizing and exceeding the standard deduction.

For itemizers, IRS limits on charitable deductions depend on what and where you donate:⁵

• Cash donations to public charities are generally deductible up to 60% of your adjusted gross income (AGI).
• Appreciated assets (such as stock held for more than one year) to public charities are generally deductible up to 30% of your AGI.
• Contributions to private foundations or fraternal organizations/societies are typically limited to 30% of AGI for cash and 20% for appreciated property.

If your donation exceeds these annual limits, you may be able to carry forward the remaining amount for up to five years.

Conversely, starting in 2026, charitable donations below 0.5% of your AGI will not be deductible. Additionally, taxpayers in the highest tax bracket will see the value of itemized deductions slightly reduced, with deductions capped at 35 cents per dollar instead of 37 cents.⁶

Charitable giving may also help reduce your taxable estate. For 2026, estates above $15 million are subject to federal estate tax.⁷ At the state level, the rules vary. Some states impose estate taxes, inheritance taxes, or even both. It's important to understand these thresholds if you're seeking to minimize estate tax exposure.

Choosing the right charitable giving methods

Selecting the right method for charitable giving is essential to achieving your philanthropic and financial goals while receiving a tax benefit. Below are several strategies to consider.

Donor-advised funds

A donor-advised fund (DAF) is an account established to support charitable organizations, administered by a sponsoring 501(c)(3) organization. When you contribute to a DAF, your gift is irrevocable and you receive an immediate federal income tax deduction, even if you distribute the funds to charities later.⁸

Key benefits include:

• You can contribute cash, long-term appreciated securities, or, in some cases, more complex assets such as real estate or business interests.
• Any investment growth within the DAF is tax-free, which may increase the impact of your future gifts.
• By donating long-term appreciated assets (such as stock that has been held for more than one year), you can avoid capital gains tax, allowing the charity to receive the full value.

One of the main advantages of a DAF is flexibility. For example, you can bunch deductions by making one large contribution to receive the tax deduction in a particular year, then spread out grants to qualified charities over time. A DAF can also help streamline charitable giving and recordkeeping, enabling you to manage the process from a single account instead of writing multiple checks.

Qualified charitable distributions

A qualified charitable distribution (QCD) is a distribution made from a traditional IRA directly to a qualified charity.

If you have a traditional IRA, you must begin taking required minimum distributions (RMDs) and paying income taxes on them starting at age 73 (or age 75 effective January 1, 2033). However, no tax is due on a QCD since it is made directly from your IRA provider to an eligible charity. The QCD also counts towards satisfying your annual RMD requirement.⁹

A QCD can be a strong alternative to taking an RMD and then using the proceeds to make a charitable donation. For example, if your annual RMD is $60,000:

• You could direct $15,000 from your IRA to go to an eligible charity via a QCD.
• For RMD purposes, only $45,000 would be considered taxable income.
• The charity would receive the full $15,000 donation.

You must be at least age 70½ to make a QCD and the 2025 maximum annual limit is $108,000 per individual. Also, this option isn't available for 401(k)s, but you may be able to roll over a 401(k) to an IRA and then make a QCD.

Charitable trusts

Charitable trusts offer sophisticated solutions for donors with complex estates or those seeking to balance income needs with charitable intentions.

Charitable remainder trust

You can provide income for yourself or a loved one while supporting a charitable organization through a charitable remainder trust (CRT). With a CRT, you transfer assets to the trust and designate a charity for your donation. The trust generates income for you or a beneficiary, either for life or for a term of up to 20 years.¹⁰

At least 10% of the original value of the assets in the trust must remain after that income is paid out. The leftover amount, or "remainder," goes to the charity, and you can receive an upfront tax deduction for it.

Charitable lead trust

A charitable lead trust (CLT) essentially works in reverse: the charity receives income from the trust for a set period, after which the remaining assets are paid to the non-charitable beneficiaries, typically you or your heirs. CLTs may be useful for reducing estate and gift taxes while supporting charitable organizations during your lifetime.¹¹

CRTs and CLTs are types of irrevocable trusts and can be complex, so it's important to work with an experienced estate planning attorney and tax advisor. They can help structure the trust correctly and ensure it complies with IRS requirements.

Timing and planning considerations

Strategic timing is crucial for maximizing the benefits of charitable giving. Consider bunching charitable contributions into a year instead of spreading them out over several years. Look for opportunities to align donations with major life events, such as receiving an inheritance or selling a business. Regularly review your strategy with tax, legal and financial advisors to adapt to changes in your wealth, family circumstances or charitable priorities.

Finding the right charitable giving strategy

Charitable giving is an opportunity to create positive change, express your values and build a legacy that endures. By understanding how different strategies work and integrating them into your financial plan, you can maximize the impact of your charitable contributions while supporting your long-term goals.

A Citizens Wealth Advisor* can help you explore your options, develop a personalized approach and ensure your charitable giving aligns with your broader financial objectives.

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