When we give to charity, we do it because we care. Because it feels good to make a difference.
But when that generosity can help strengthen your financial picture at the same time, it feels even better.
Recent tax law changes under the One Big Beautiful Bill (OBBB) Act have made charitable giving even more powerful, with higher deduction limits, flexible tools for donors, and smarter ways to give that can help lower your taxable income.
Read on to explore three ways to help your giving have greater impact, for both the causes you care about and your long-term financial plan.
1. Give Directly from Your IRA with a Qualified Charitable Distribution (QCD)
A Qualified Charitable Distribution (QCD) allows you to donate directly from your IRA to a qualified charity without paying income tax on the amount transferred.
QCDs can be made from most tax-deferred IRA accounts, including traditional IRAs, inherited IRAs, and certain SEP or SIMPLE IRAs, so long as those accounts are no longer receiving new contributions. However, QCDs can’t be made directly from workplace plans like 401(k)s or 403(b)s. In that case, you’d need to roll funds into an IRA first.
For retirees aged 70 ½ or older, QCDs remain one of the most tax-efficient ways to give. You can donate up to the IRS annual QCD limit ($108,000 for 2025 tax year, $115,000 for 2026) directly from your IRA to a qualified charity, bypassing income tax altogether.
Why this matters:
- QCDs count toward your Required Minimum Distribution (RMD) without increasing your taxable income.
- You’ll receive the tax benefit whether or not you itemize deductions.
- Inherited IRAs may also qualify for this strategy, expanding opportunities for families managing legacy assets.
Example scenario: Susan, age 73, has an IRA worth $600,000 and must take a $25,000 RMD this year. If she withdraws it normally, she’ll owe income tax on the full amount. Instead, she donates the $25,000 directly to her local animal rescue using a QCD. The donation satisfies her RMD, supports a cause she loves, and avoids adding $25,000 to her taxable income.
2. Use a Donor-Advised Fund for Strategic Flexibility
A Donor-Advised Fund (DAF) is a simple and flexible way to manage charitable giving over time. When you make a qualified contribution to a DAF (which can include cash, stock, or other assets), you receive an immediate tax deduction in the year you donate. From there, your contribution is invested and can potentially grow tax-free until you decide which qualified charities to support.
A Donor-Advised Fund is ideal if you:
- Want to lock in a deduction this year while deciding later which causes to support.
- Have a high-income or capital gain event (like selling stock or property).
- Are “bunching” deductions* to surpass the new standard deduction threshold.
“Bunching” deductions means combining or “stacking” several years’ worth of charitable gifts or deductible expenses into a single tax year so the total exceeds the standard deduction, allowing you to itemize and claim a larger overall tax benefit.
With the deduction cap now set at 60% of AGI (Adjusted Gross Income), funding a DAF can significantly reduce taxable income while allowing your investments to grow tax-free until grants are made.
Example scenario: Michael and Erin sold a rental property this year, triggering a large capital gain. They contribute $40,000 of the proceeds to a DAF. This gives them a large deduction in the current tax year, even though they plan to distribute the funds to local charities gradually over the next five years. Their gift helps offset taxes on the sale and supports the organizations they care about, on their own timeline.
3. Coordinate Your Gifts with Your Overall Tax Plan
With the OBBB locking in lower tax rates and higher deductions, timing matters more than ever, and strategic giving during low-tax years can amplify your long-term impact.
Consider:
- “Bunching” smaller donations into a single year to get past the 0.5% AGI floor and increase the portion that’s deductible.
- Donating appreciated securities to potentially avoid capital gains tax.
- Pairing charitable giving with Roth conversions or estate planning to transfer assets more efficiently.
Example scenario: After retiring, Jim and Linda find themselves temporarily in a lower tax bracket before Social Security and RMDs begin. They decide to convert part of their IRA to a Roth account, but they also donate appreciated stock to charity in the same year. The donation offsets the tax owed on the conversion, helping them reduce future taxable income and support their favorite nonprofit at the same time.
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At The CP Welde Group, we’re proud to help clients balance their philanthropic goals with long-term tax efficiency.
If you want to make sure your generosity has the greatest impact, let’s talk. Schedule your free call today and we’ll help you put a plan in place that both honors your values and strengthens your retirement.
Because giving is a beautiful thing, and with the right plan, it can be a smarter one, too.
Tax Advantages of Charitable Giving FAQs
What’s the current deduction limit for charitable giving?
You can deduct up to 60% of your Adjusted Gross Income (AGI) for cash donations to qualified charities if you itemize.
What is a Qualified Charitable Distribution (QCD)?
A Qualified Charitable Distribution lets people 70½ or older donate money directly from their IRA to a charity without it counting as taxable income. It can also help meet your Required Minimum Distribution (RMD) for the year. QCDs can come from most IRAs, but not directly from 401(k)s or other employer plans.
What is a Donor-Advised Fund (DAF)?
A DAF is like a charitable investment account. You contribute cash or assets, get an immediate tax deduction, and then recommend grants to charities when you’re ready. It offers flexibility, growth potential, and an easy way to organize your giving in one place.
Do I have to itemize to get a deduction?
Beginning with 2026 tax years, non-itemizers can claim $1,000 (single) / $2,000 (MFJ) as a separate line-item charitable deduction. Donor-advised fund contributions don’t qualify for this particular deduction.
What is “bunching” deductions?
“Bunching” means grouping multiple years of charitable gifts into one tax year to exceed the standard deduction and get a larger tax benefit.