Charitable Giving as a Tax Strategy for High Earners

Charitable giving has never been a way to make money. If you are in the 35% bracket and you write a $10,000 check to your church, you are out $6,500 after the deduction. You gave the money away because you wanted to, and the tax code softened the donation.

What I care about as a strategist is making sure that when you do give, you capture every dollar of benefit the code allows.

Strategy One: Bunching Through a Donor-Advised Fund (DAF)

Bunching means compressing several years of giving into a single tax year so that you clear the standard deduction by a wide margin in that year, then take the standard deduction in the off years. A donor-advised fund is what often makes this practical, because it separates the tax event from the charitable event. You get the deduction in the year you fund the account. The charities you support get their money on whatever schedule you choose, which might be evenly over the next few years.

Here is what it looks like in practice. Consider a married couple with $750,000 of AGI who plan to give $60,000 over four years. Their standard deduction is $32,200. Their state and local tax deduction is capped at $10,000 because their income is well above the phase-down range, and they have $14,000 of mortgage interest, so their itemized deductions before charitable donations total $24,000. Their charitable floor is $3,750 when using their itemized deductions. This is a new One Big Beautiful Act (OBBBA) change to the tax code that for a charitable donation to be taken you will need to exceed a 0.5% floor before you can claim that donation as an itemized deduction.

Look at where that leaves them if they give the ordinary way. Their other deductions fall $8,200 short of the standard deduction, and the floor absorbs the first $3,750 of giving. Between the two, the first $11,950 they give in any year produces nothing. On a $15,000 annual gift, only $3,050 generates a deduction they would not have received by giving nothing at all.

The same $60,000 reaches the same charities on roughly the same timeline. The difference is $12,548 in federal tax before accounting for any state benefit. The couple absorbs the floor once instead of four times, and in the bunch year every charitable dollar sits on top of a full deduction stack rather than being spent climbing back to the standard deduction.

The specific dollar thresholds in this example adjust for inflation each year, and the phase-outs that apply to your state and local tax deduction depend on your income. The mechanics do not change.

Give Appreciated Stock Instead of Cash

If you hold publicly traded stock that has gone up and you have owned it more than a year, giving the shares is almost always better than selling them and giving the proceeds. Long-term capital gain property escapes the basis reduction rule in IRC §170(e)(1)(A), so you deduct the full fair market value and never recognize the gain.

Suppose the couple above funds their $60,000 contribution with stock they bought years ago for $15,000. The $45,000 of embedded gain disappears from their return entirely. At the 20% long-term capital gains rate plus the 3.8% net investment income tax, that is $10,710 of federal tax they never pay, on top of the deduction they already claimed. State capital gains tax, where it applies, adds to that.

Three constraints are worth knowing. Long-term appreciated property is subject to a 30% of AGI limit rather than the 60% limit that applies to cash, and anything above the limit carries forward for five years. Shares held a year or less are deductible only at your cost basis, so the holding period matters. Publicly traded securities are exempt from the qualified appraisal requirement under IRC §170(f)(11)(A)(ii)(I), though you still report the gift on Form 8283.

Timing Matters More If You Own Real Estate

If you are running short-term rental strategies or cost segregation studies, your income is not flat from year to year. It is lumpy by design. A study on a property you placed in service this year might generate a six-figure paper loss that drops your marginal rate from 35% to 24%.

That matters, because a charitable deduction is worth your marginal rate. Stacking a large charitable contribution into the same year as a big cost segregation deduction is one of the more expensive mistakes I see, because you are spending a deduction in a year when deductions are cheaper.

The better sequence is usually the reverse. Bunch your giving into the high-income years when you have no study coming, and let the depreciation losses do their work in the years when you are not making a large gift. A donor-advised fund is what gives you the freedom to choose, because the charities never see the difference.

There is a related point worth naming. Several deductions and credits phase out as adjusted gross income rises, and charitable contributions cannot help you with any of them, because they sit below the line and do not reduce AGI. Depreciation losses do reduce AGI. This is another reason the two strategies belong in different years rather than the same one.

Get the Paperwork Right

Any single gift of $250 or more requires a contemporaneous written acknowledgment from the charity under IRC §170(f)(8), and you need it in hand by the earlier of the date you file or your return due date. Obtaining the letter later does not fix the problem. Non-cash gifts over $500 require Form 8283, and non-cash gifts over $5,000 generally require a qualified appraisal, subject to the exception for publicly traded securities. For stock gifts, keep your brokerage transfer confirmations, because the deduction is measured on the date the shares land in the charity's account rather than the date you submitted the request.

Where to Start

Add up your last three years of giving. Then compare that annual number to the gap between your other itemized deductions and the standard deduction, plus one half of one percent of your AGI. If your giving is landing anywhere near that combined figure, most of it is producing no tax benefit at all, and bunching is worth a serious look.