Annual or monthly donations to charities work, but they are rarely as tax efficient as they could be.
If you are in the habit of charitable giving, it’s time to shake it up.
For many who value charitable giving, each year’s strategy tends to look the same. A check to a favorite organization in December. A workplace giving campaign donation. A text-to-give response to a cause that moved them. Maybe a recurring monthly gift set up years ago and never revisited.
Don’t get us wrong, it works. The charity receives the gift. The donor feels good about giving. But it’s rarely as tax efficient as it could be. And in many cases, the family giving $5,000 per year to causes they genuinely care about is receiving far less in tax benefits from that giving than they realize.
The method and timing of charitable giving, not just the amount, determines how much tax benefit accompanies the gift. Two families who give the identical total amount to the identical causes in the identical year can have meaningfully different tax outcomes based entirely on how they structure the gift.
The strategies that produce the best year-end giving outcomes, Donor-Advised Funds, Qualified Charitable Distributions, appreciated securities donations, all require setup and processing time. Starting early gives you the runway to execute thoughtfully rather than scrambling before the end of the year.
Here is what the most tax-efficient charitable giving looks like, and how to apply it to your specific situation.
Why Most Charitable Giving Doesn't Produce a Tax Benefit
Before describing what works, it's worth understanding why the default approach often doesn't work as well as people expect.
The 2017 Tax Cuts and Jobs Act significantly increased the standard deduction. This is the baseline amount the IRS allows every taxpayer to deduct from income without itemizing. In 2026, the standard deduction is $16,100 for single filers and $32,200 for married filing jointly. For most Americans, this means that itemized deductions, including charitable contributions, only produce an additional tax benefit when they exceed the standard deduction threshold.
Let’s consider a family with $20,000 in mortgage interest and state and local taxes. That’s already a fairly high level of itemized deductions. Say they give $5,000 per year to charity, bringing their total potential itemized deductions to $25,000. Because $25,000 is less than the $32,200 standard deduction, they take the standard deduction. So, their $5,000 in charitable giving produces exactly zero additional federal tax benefit. They gave generously and received nothing for it on their tax return.
This is a cue that it's time to give differently.
The strategies below either work around the standard deduction problem or produce tax benefits entirely independent of it. All of them are legal, well-established, and available to most donors who choose to implement them.
Strategy #1: “Bunching” or Concentrate Giving to Cross the Threshold
The bunching strategy is the most accessible approach for donors whose annual giving comes close to but doesn't exceed the standard deduction threshold when combined with other itemized deductions.
The concept is straightforward: instead of giving your normal amount every year, you give two or more years' worth of planned charitable contributions in a single tax year — then take the standard deduction in the alternating year.
Here's how the math works. If a married couple plans to give $8,000 per year to charity and has $18,000 in other itemized deductions (mortgage interest, state taxes), their total itemized deductions are $26,000 in a normal year. This ends up below the $32,200 standard deduction. Their giving produces no additional tax benefit.
Now apply the bunching strategy. In Year 1, they give $16,000. That’s two years' worth of planned giving at once. Their total itemized deductions become $34,000, which exceeds the standard deduction by $1,800. That excess is now deductible. In Year 2, they give nothing to charity and take the standard deduction of $32,200.
Over the two years, they gave the same $16,000 they were always planning to give. But instead of $0 in charitable deductions, they now have $1,800 in itemized deductions above the standard deduction. This is a real tax benefit on giving they were going to do anyway.
The practical challenge: bunching requires either having the cash available to give double in Year 1 or using a Donor-Advised Fund (the next strategy) to create a separation between when you put the money in from when the charity actually receives it.
DAF contributions can be invested in a portfolio of funds and grown tax-free until granted to charity.
Strategy #2: Donor-Advised Funds: The Most Flexible Giving Tool Available
A Donor-Advised Fund is a charitable giving account. It is sponsored by an organization like Fidelity Charitable, Schwab Charitable, Vanguard Charitable, or a local community foundation. A donor makes an irrevocable contribution to the fund and immediately receives a tax deduction. Then, the donor then recommends grants from the fund to specific charities over time, at whatever pace they choose.
The key feature that makes DAFs so powerful is the separation of the tax event from the grant event. The deduction is received the year money goes into the DAF while the distributions to actual charities can happen over several years.
This separation creates several strategic opportunities:
Bunching into a DAF. Instead of writing a large check directly to charity in a bunching year, which requires committing to a specific organization immediately, you contribute the bunched amount to your DAF and take the full deduction in the high-income year. Then you recommend grants to your preferred charities over time, on your own schedule. The DAF allows you to capture the tax benefit of bunching while maintaining flexibility about where the money ultimately goes.
Capturing deductions in high-income years. A business sale, a large bonus, a military retirement lump sum, or any year with elevated income is an ideal moment to make a substantial DAF contribution. Your marginal tax rate is at its highest, making the deduction most valuable. The money sits in the DAF and is distributed to charities in subsequent years. But the tax benefit was captured when it was worth the most.
Investment growth inside the DAF. Contributions to a DAF can be invested in a portfolio of funds and grown tax-free until granted to charity. A $10,000 contribution invested and grown to $13,000 over several years means the charity ultimately receives $13,000 instead of $10,000. Your giving dollars compound before they reach the cause you care about.
Practical considerations: Most major DAF sponsors require a minimum initial contribution of $5,000 to $10,000. Community foundation DAFs often have lower minimums and provide additional local charitable expertise. Annual administrative fees are modest, typically 0.60% or less of the account balance. There is no deadline by which grants must be made, though the IRS has shown increased scrutiny of DAFs that accumulate large balances without distributing grants. So, a reasonable giving pace is both good practice and good policy.
Strategy #3: Qualified Charitable Distributions: The Best Kept Secret for IRA Holders
For IRA owners who are age 70½ or older, the Qualified Charitable Distribution is one of the most tax-efficient giving strategies available.
A QCD is a direct transfer from an IRA to a qualified charity, processed directly from the IRA custodian to the organization. In 2026, IRA owners can make QCDs of up to $111,000 per individual per year.
The tax advantage is distinctive: the QCD amount is excluded from taxable income entirely. It doesn't show up as income, and it may satisfy all or part of your Required Minimum Distribution obligation for the year.
To understand why this is so powerful, compare it to the alternative. An IRA holder takes their $20,000 RMD, pays income taxes on it at their marginal rate, and then donates the after-tax amount to charity. If they're in the 22% bracket, they received $15,600 after taxes, and that's what the charity got (assuming they donate the full after-tax amount). They paid $4,400 in taxes on money that ultimately went to charity.
With a QCD, the full $20,000 goes directly to the charity. No taxes. No intermediate step. The charity receives $4,400 more than it would have under the alternative approach without the donor spending an additional dollar.
And for IRA holders who take the standard deduction, meaning a charitable contribution deduction wouldn't help them anyway, the QCD produces a tax benefit that no other giving strategy can replicate. It reduces taxable income directly, without requiring itemization.
IRA owners who are 70½ or older, who are charitably inclined, who don't need their full RMD for living expenses, and who take the standard deduction benefit the most from this strategy. Military retirees in their 70s with pension income, TSP accounts subject to RMDs, and Social Security may be in a situation where QCDs add the most value.
It is worth noting that QCDs must be transferred directly from the IRA custodian to the qualified charity. The IRA owner cannot receive the funds and then forward them. That action converts the transaction into a regular withdrawal and donation, eliminating the tax benefit. Allow two to three weeks of processing time before December 31st. Do not wait until the third week of December.
Strategy #4: Donating Appreciated Securities: Avoid Capital Gains, Maximize the Deduction
For donors with investments held in a taxable brokerage account that have increased in value, donating the appreciated security directly to charity, rather than selling it and donating the proceeds, produces a double tax advantage.
Here's the comparison:
Selling and donating cash: You sell a stock which was purchased for $5,000 that's now worth $20,000. You owe capital gains tax on the $15,000 gain. At 15% for many taxpayers, that's $2,250. You donate the $17,750 in after-tax proceeds to charity and claim a $17,750 deduction.
Donating the stock directly: You transfer the shares directly to the charity. You avoid the $2,250 in capital gains tax entirely. You claim a $20,000 charitable deduction, the full fair market value of the shares. The charity receives $20,000. Win-win.
The difference: $2,250 in taxes avoided, a $2,250 larger deduction, and the charity receives more. The donor’s net outlay is the same.
This strategy applies to any long-term appreciated investment such as stocks, mutual fund shares, ETFs. The security must have been held for more than one year to qualify for the full fair market value deduction. Short-term holdings (held less than a year) are deductible only at cost basis, eliminating most of the advantage.
How to execute: Most charities that regularly receive securities donations have a brokerage account and a transfer process. Contact the charity's development or finance office well in advance (not in the last week of December) to initiate the transfer. Most donors find that working through a DAF simplifies this process, since DAFs are set up specifically to receive securities donations and distribute cash grants to charities.
For business owners specifically: Appreciated investments in a taxable brokerage account are particularly common for business owners who have directed after-tax business income into personal investments over the years. If you're in a high-income year and charitably inclined, donating appreciated securities is often the most efficient giving strategy available, combining capital gains avoidance with a high-bracket deduction.
Military families who want to direct giving within their community have access to a range of highly regarded organizations.
Military and Veteran Charities Worth Knowing
Military families who want to direct giving within their community have access to a range of highly regarded organizations. Here are several that consistently receive strong ratings from independent charity evaluators:
Fisher House Foundation builds and operates comfort homes near military and VA medical centers, providing free lodging for military families while a loved one receives medical care. It is one of the most efficient military charities in the country by any measure.
Gary Sinise Foundation serves veterans, active-duty military, first responders, and their families through a range of programs including specially adapted smart homes for severely wounded veterans.
Tunnel to Towers Foundation provides mortgage-free homes to Gold Star families and fallen first responder families, and pays off mortgages for catastrophically injured veterans.
Wounded Warrior Project offers programs and services for veterans with service-connected injuries and illnesses, including mental health support, career counseling, and peer support.
National Military Family Association (NMFA) advocates for military family policy and provides scholarship and support programs specifically for military spouses and children.
Operation Homefront provides emergency financial assistance, transitional housing, and other support services to military families in need.
Before directing a significant gift to any organization, military-focused or otherwise, verify current ratings through Charity Navigator or GuideStar. Ratings and organizational health change over time, and due diligence on charitable giving deserves the same thoughtfulness as any other financial decision.
Putting It Together: Choosing the Right Strategy for Your Situation
No single giving strategy is right for every donor. The approach that produces the best outcome depends on your age, your income, the type of assets you hold, and your existing tax picture.
A simple framework:
If you're under 70½ and your charitable giving doesn't exceed the standard deduction threshold: consider bunching, either directly or through a DAF, to concentrate giving into alternating years and capture deductions you're currently leaving on the table.
If you're under 70½ and you're in a high-income year: a large DAF contribution captures the deduction when it's most valuable, with flexibility to distribute grants over time.
If you hold appreciated investments in a taxable account: donate securities rather than cash. Avoid the capital gains tax and claim the full fair market value.
If you're 70½ or older with an IRA subject to RMDs: a QCD is almost always the most efficient approach for the charitable portion of your giving, particularly if you take the standard deduction.
These strategies are not mutually exclusive. A donor in their 70s might use QCDs for their RMD-based giving, donate appreciated securities from their brokerage account to a DAF, and direct grants from the DAF to their preferred military charities over the following two years. The strategies can layer.
The Bottom Line
Charitable giving is one of the most personally meaningful financial decisions people make. It deserves the same deliberate thought as any other financial decision. This isn’t because generosity should be calculated, rather that giving thoughtfully means more reaches the causes you care about and less is lost to taxes that could have been avoided by the right strategy.
The time to make these decisions is November or earlier, not December 26th. If you'd like help thinking through how charitable giving fits into your complete financial and tax picture, we'd love to be part of that conversation.
