How to maximize charitable donations

Recent tax law changes mean more taxpayers may now be eligible for a tax break when making charitable donations—even if they don't itemize deductions.

But when it comes to donating to charity, it's not just about tax savings. Whether you contribute a few dollars or several thousand, making strategic choices about how you donate can help you maximize the impact of your gifts.

Create a charitable giving strategy

Many people make charitable donations throughout the year without giving much thought to when, where or how they give. Developing a charitable giving strategy can help you give more intentionally. Here are four approaches that can help.

Establish charitable giving goals

Start by identifying the causes you care about most. Whether your priorities include education, animal welfare, medical research, veterans or the arts, narrowing your focus can help you make a more meaningful long-term impact.

Charitable giving can also be an opportunity to involve your children. Deciding together which causes to support can help pass your values on to the next generation. You might even make charitable giving a regular part of family meetings.

Develop a charitable giving plan

After you've identified the causes you'd like to support, decide how you want to give. Consider the following questions as you start to plan.

• How much can you comfortably donate each year?
• Would monthly gifts fit your budget better than annual contributions?
• Do you want your donations to support general operations or a specific program?
• Are there opportunities to make a lasting impact?
• Do you own assets that may offer tax advantages when donated—like appreciated assets and certain life insurance policies?

Your financial advisor and tax professional can also help incorporate charitable giving into your broader financial plan. This can allow you to pursue philanthropic goals while staying on track for retirement and other long-term objectives.

Research charities before you give

Before making a donation, take a few minutes to verify that an individual organization is legitimate. A few steps can help ensure your contribution reaches the intended cause.

• Confirm the charity's legal name, address and Employer Identification Number.
• Verify its tax-exempt status using the IRS Tax Exempt Organization Search tool.
• Review independent evaluations from organizations such as Charity Navigator, GuideStar, CharityWatch or the BBB Wise Giving Alliance.
• Review the charity's Form 990 to better understand how it uses donations.
• Donate using secure, traceable payment methods like credit cards.

Consider a donor advised fund

As your charitable giving becomes more substantial, a donor advised fund, or DAF, may offer additional flexibility.

When you donate assets—cash, securities or anything else—to a DAF, you're eligible for a potential tax deduction in the same year. You can then recommend grants to your favorite charities over time rather than deciding immediately where every dollar should go.

For example, let's say you've donated sporadically in the past, but your family decides to open a DAF and contribute $500 per month. You may qualify for a charitable deduction that year while leaving the funds invested until you decide which charities to support. This allows your contributions to grow tax-free while giving your family flexibility over when and where to make grants.

Understand the tax benefits of charitable giving

Once you've developed a giving strategy, it's important to understand how the charitable donation tax deduction works. Whether you receive a tax break—and how much—depends largely on whether you claim the standard deduction or itemize.

If you claim the standard deduction

Recent tax law expanded charitable tax benefits for taxpayers who don't itemize. Under the One Big Beautiful Bill Act, or OBBBA, taxpayers who claim the standard deduction can deduct up to $1,000 for single filers and $2,000 for married couples filing jointly.

This deduction applies only to direct cash contributions, including credit card donations, that were made to qualified 501(c)(3) public charities. It doesn't apply to contributions made to DAFs or private foundations.

If you itemize deductions

Cash contributions to qualified charities are deductible up to 60% of your adjusted gross income, or AGI. However, these charitable deductions are generally allowed only to the extent that they exceed 0.5% of your AGI.

For example, if your AGI is $100,000, the first $500 of charitable contributions wouldn't be deductible. And while contributions above this amount may qualify for a deduction, they're also subject to the new limits on overall itemized deductions for high-income taxpayers introduced under the OBBBA.

Keep good records of your donations

Many people don't receive the full charitable donation tax deduction they're entitled to because they don't keep adequate records. Follow these steps to help support your claims.

• Save written acknowledgments and receipts for donations.
• Keep records for at least 3 years in case questions arise.
• Confirm that the organization is a qualified nonprofit rather than an individual, political campaign or civic organization.

Don't overlook deductible contributions that are easy to forget, including:

• Donations to Goodwill or similar organizations
• Workplace giving campaigns
• Church contributions
• Nonreimbursed volunteer expenses, such as mileage, supplies or travel
• The charitable portion of fundraising event tickets

Crowdfunding campaigns, including many GoFundMe fundraisers, generally aren't tax-deductible unless the donation is made directly to a qualified charitable organization.

Advanced tax-saving strategies

Several strategies may help make your charitable giving more tax-efficient.

1Donate appreciated assets

Cash isn't always the most tax-efficient way to donate. If you itemize, donating assets that have grown in value may allow you to avoid paying capital gains tax on any realized gain while still deducting the asset's fair market value. Just note that deductions for appreciated assets are limited to 30% of your AGI.

Assets that can be donated include:

• Publicly traded stocks
• Mutual fund shares
• Bonds
• Restricted stock
• Real estate
• Artwork
• Jewelry
• Closely held business interests

Inherited property and personal items you can't use or don't want may be another charitable giving opportunity.

2Bundle donations into a single year

If you have the available funds, a strategy called bundling—or bunching—can help you maximize your donations and their impact.

Because the standard deduction is high, many taxpayers' itemized deductions still fall short of the threshold. A popular strategy in these cases is to combine multiple years of charitable giving into a single tax year.

For example, let's say a married couple typically claims the standard deduction because their annual itemized deductions total about $29,000. If they normally donate $2,000 each year, they could instead contribute $6,000 in a single year—increasing their itemized deductions to $35,000. They can benefit by itemizing during that year and then return to claiming the standard deduction in subsequent years.

Making your bundled gift to a DAF can be especially strategic because you get the tax benefit but can still spread out your donations over time.

3Make a qualified charitable distribution in retirement

If you're 70 1/2 or older, a qualified charitable distribution, or QCD, may be one of the most tax-efficient ways to give.

A QCD allows you to transfer up to $111,000 annually directly from an individual retirement account, or IRA, to a qualified charity. Because the funds never become taxable income, the distribution may lower your AGI while supporting causes you care about.

Potential benefits include:

• Satisfying required minimum distributions when applicable
• Potentially lowering taxation of Social Security benefits
• Potentially avoiding higher Medicare income-related monthly adjustment amount, or IRMAA, surcharges
• Providing tax benefits even if you claim the standard deduction

The bottom line

No matter how much you donate, thoughtful planning can help you make a greater impact while taking advantage of available tax benefits.

Whether you're creating your first charitable giving plan, considering a donor advised fund or exploring more advanced tax strategies, it's important to understand how charitable giving fits within your overall financial picture. Talk to your financial advisor to discuss options for your charitable giving strategy.