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Gift stacking, also known as gift bunching, is a great strategy to maximize charitable impact while also boosting your tax efficiency.
This strategy allows you to combine multiple years of charitable giving into one tax year, and you can increase your itemized deduction amount above the standard deduction threshold, allowing you to take advantage of more meaningful tax savings than if you would have spread those same gifts out annually.
This can be done by simply making a large gift to a charity of your choice in a given year and foregoing gifts the next, or by putting that money into a Donor Advised Fund (DAF) to fund multiple years of giving. When you pre-fund your charitable donations into a DAF, you immediately receive the full tax deduction in the year you contribute, even if the funds are not distributed to the charities until future years.
This gives you flexibility in how and when the money is given, while still locking in the tax benefit today, making gift stacking an efficient planning technique for higher-income years, or for alternating between itemizing and taking the standard deduction.
If you don’t use gift stacking and instead spread your charitable giving evenly each year, you may not receive a substantial tax benefit, or any tax benefit at all, if your annual donations do not exceed the standard deduction amount. Many people mistakenly believe that if they donate annually, they automatically receive a higher deduction, but this is not always the case.
Without gift stacking, your charitable gifts could be absorbed into the standard deduction amount, meaning that you’d lose out on potential additional tax savings that could’ve been unlocked with more strategic timing.
Combining gift stacking with a Donor Advised Fund is a powerful strategy that allows you to maximize your deductions by alternating between itemizing and taking the standard deduction while still allowing you to make consistent gifts to charity each year.
One of the most tax-efficient ways to give is by donating appreciated assets, like stock or real estate. When you donate assets that have increased in value since you purchased them, you avoid paying capital gains tax on the appreciation.
If you itemize deductions, you can also claim the asset’s full fair market value as a charitable contribution (subject to limitations). This makes donating appreciated assets significantly more efficient than giving cash, almost like receiving a double benefit since there is no capital gains tax and you can take a full-value deduction.
Here’s an example:
Imagine you purchased stock for $5,000, and over time it grows to $50,000. You plan to donate $50,000 to a charity you care about, so instead of giving cash, you donate the shares. You receive a deduction for the full $50,000 gift, and you avoid paying capital gains tax on the $45,000 appreciation. The charity can sell the shares tax-free, allowing your full gift to support their mission.
Donating highly appreciated assets allows you to maximize your impact by being tax efficient. It can also be a smart strategy for investors who want to rebalance a diversified portfolio while supporting meaningful causes. By funneling your giving money into your investment account and giving appreciated shares instead, you are able to limit your capital gains and replace low-cost basis stocks to reduce your future taxes.
Common assets you can donate include:
How to donate appreciated assets:
To donate publicly traded stock, your financial adviser can help you initiate a transfer directly to the charity or to a Donor Advised Fund. You will need to contact the charity to ensure they accept stock donations and acquire the charity’s investment account number and their DTC number. It’s important to notify the organization ahead of time so they know to expect your gift and can issue the appropriate receipt. For non-traditional assets, like real estate, business interests, or crypto, reach out to the charity first to confirm they can accept the gift and complete any required steps. Often a Donor Advised Fund (DAF) can help to facilitate this type of gift when a charity is unable to do so. Donating business or real estate gifts require additional planning well in advance of your transaction. It is a good idea to connect with our team as well as your CPA and attorney(s) when you begin considering this type of gift.
Qualified Charitable Distributions (QCDs) are an excellent tool for retirees to maximize the tax benefits of giving. A QCD is a tax-efficient way for individuals age 70 ½ or older to give directly from their Individual Retirement Account (IRA) to a qualified charity. Rather than withdrawing funds from an IRA, paying income taxes on the distribution, and then donating the after-tax amount, a QCD allows the gift to go directly from the IRA to the charity of your choice, keeping the distribution excluded from reportable income.
To qualify, you must be at least 70 ½ years old at the time of the distribution, and the gift must come from a traditional IRA. Each individual can contribute up to $100,000 per year ($200,000 for married couples filing jointly), and gifts must be made directly to a qualified 501(c)(3) public charity. It’s important to note that donor-advised funds, private foundations, and supporting organizations do not qualify for QCDs.
A great advantage of a QCD is that it can satisfy all or part of your Required Minimum Distribution (RMD) once you reach the age of 73. Since QCDs are excluded from taxable income, they lower your adjusted gross income (AGI), which could lower Social Security benefits taxes and help avoid higher Medicare premiums (called your “IRMA”). If you don’t itemize deductions, giving through a QCD is particularly beneficial because the gift never hits your income and no deduction is necessary.
For example, if your RMD for the year is $30,000 and you choose to make a $10,000 QCD, that $10,000 goes directly to your chosen charity and is excluded from taxable income. You would only then report the remaining $20,000 as income for the year.
By giving directly from an IRA, you can meet your RMD obligations, support charities of your choice, and reduce your tax liability.
Donor-Advised Funds (DAFs) offer a flexible and strategic way to support the causes you care about over the long term.
What is a Donor-Advised fund?
A DAF is a charitable giving account that allows you to contribute assets, receive an immediate tax deduction, and distribute funds to charities over time. This structure can be especially helpful if you want to plan your giving intentionally.
Here are a few key advantages of using a Donor-Advised Fund:
DAFs can typically accept complex gifts, such as shares of a closely held business, appreciated securities, or other non-cash assets. If the charity cannot receive a gift directly, you can donate the asset to your DAF instead. The fund can liquidate the assets and distribute the proceeds to the charity (or multiple charities) of your choice.
Money inside a DAF can be invested before it’s donated, and it will grow tax-free. Many sponsors offer impact-focused investment options. These investments can potentially grow your charitable pool, allowing you to give more over time. If the investments lose value, the loss occurs on funds you’ve already committed to charity.
If you are looking for a structured, tax-efficient, and scalable way to support the causes that mean the most to you, donor-advised funds may be an excellent option.
Other advantages:
