How new U.S. tax rules are reshaping charitable giving plans

Charitable giving in the United States reached a record $617.2 billion, up 5.7% from the prior year, according to Giving USA’s Annual Report on Philanthropy.

As donations continue to grow and tax rules change, financial advisors and tax professionals are guiding individuals and families toward giving strategies that are both meaningful and tax-aware.

“The most effective giving plans start with purpose and handle taxes second,” said Joshua Hoffman, CPA, partner at MMB+CO.

Recent federal tax changes have altered the way many people approach charitable giving. Taxpayers who use the standard deduction can now write off up to $1,000 in qualifying cash gifts, or $2,000 for married couples filing jointly.

“This is a modest benefit, but it rewards giving by most households for the first time in years,” Hoffman said.

People who itemize now face a new hurdle: contributions must exceed 0.5% of adjusted gross income before they become deductible. To improve tax outcomes, Hoffman suggests donating appreciated stock, making qualified charitable distributions from retirement accounts, or grouping several years of gifts into a donor-advised fund, or DAF.

“Bunching gifts may help you clear the standard deduction and the new 0.5% floor in the year you contribute,” he said. “You can take the standard deduction in the other years.”

For retirees age 70½ and older, qualified charitable distributions allow funds to move directly from an IRA to an eligible charity without being counted as taxable income.

“For many retirees, QCDs are the most tax efficient way to give,” Hoffman said.

He said he is also seeing more charitable giving tied to major financial milestones, including business sales, Roth conversions and large capital gains.

“DAFs are now a regular part of planning, not just a tool for very wealthy families,” Hoffman said. “These instruments give donors flexibility, simplify recordkeeping and get the next generation involved.”

Beyond the tax side, Hoffman urges families to focus on the causes that matter most to them and to include younger generations in the decision-making process.

“The overall result is that timing and structure matter more than they used to,” Hoffman said. “Small, steady annual gifts by taxpayers that itemize deductions lose some tax value. Planned, concentrated giving gains value.”

At Brighton Securities, Todd W. Alexander Jr., senior vice president and financial advisor, and Steve Kunkle, CPA, tax director, work together to help clients weave charitable giving into broader financial plans.

“It’s never just an isolated year-end,” Alexander said, noting that major events such as selling a business, realizing capital gains or entering retirement can create opportunities for more thoughtful giving.

Kunkle said clients are becoming more deliberate about donations, thinking not only about how much to give, but also about timing and which assets to contribute.

One approach is to combine gifts into a single year instead of spreading them out evenly. Kunkle described a client considering postponing regular monthly donations to a faith community and then doubling the amount the following year to help fund an expansion project while potentially qualifying for itemized deductions.

“If you’re going to be sitting down with a financial advisor and developing a charitable plan … it’s almost imperative to have a CPA or a tax CPA present in on that conversation,” Alexander said.

Both professionals said this kind of coordination can help donors make the most of tax benefits without undermining long-term financial security.

“Tax efficient charitable giving isn’t just for wealthy families,” Kunkle said. “Even relatively modest contributions can be part of a financial plan.”

For Kunkle, the objective is to make charitable giving both responsible and personally meaningful.

“When it comes to which causes to support, start with your values, your core values,” he said. “What do you believe in that means the most to you personally?”

Cindi Turoski, partner in The Bonadio Group’s Tax Service Line, said the updated rules make it especially important for taxpayers to understand how deductions are calculated.

For instance, a person with $200,000 in adjusted gross income who gives $5,000 to charity would be able to deduct only $4,000 because of the 0.5% income threshold, assuming the gift otherwise qualifies in full.

Turoski also highlighted the value of qualified charitable distributions, which let people age 70½ and older donate directly from IRAs. The annual limit has risen to $111,000 per person.

“You don’t get a tax deduction, but a QCD of up to $111,000 per person isn’t includible in your income,” she said. “You get that tax benefit even if you take the standard deduction.”

Because those distributions are excluded from income, they can also reduce the taxation of Social Security benefits and help limit Medicare premium surcharges.

Turoski said charitable giving can also be a useful part of estate planning, especially when retirement accounts are involved.

“Rather than name charities in our clients’ wills to receive bequests, we often suggest they consider naming the charity as beneficiary of their IRA and provide for family in their will,” she said.

That approach can create tax advantages because most non-spouse beneficiaries must withdraw inherited IRA assets within 10 years, which can raise taxable income.

“Naming family as beneficiary doesn’t provide them with the years of tax-deferred compounding it used to,” Turoski said. “The SECURE Act requires most beneficiaries to take it out over 10 years, which really limits that.”

Making a charity the beneficiary of an IRA can also make it easier to change charitable recipients without rewriting a will, potentially saving legal costs.

Turoski also urged donors to look beyond money alone.

“Charities truly love and need your time, and it doesn’t really cost you anything,” she said. “Consider volunteering instead of, or in addition to, donating money.”