Considering a donation around the holidays? This time of the year inspires a great deal of generosity and charitable giving can also come with valuable tax benefits if planned correctly.
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You can choose to give a little or a lot, donate cash or appreciated investments and support one organization or several. The key is making sure your gift is structured in a tax-efficient way and completed before the year-end deadline so it counts for this tax year. Below are five strategies to make sure you donate wisely to charities this holiday season.
Charitable Donations Reduce Your Taxable Income
“Charitable donations reduce your taxable income through itemized deductions and when done strategically, can even help you avoid capital gains taxes,” said Rachel Richards, certified public accountant (CPA) and head of tax at Gelt. “This not only lowers your current tax bill but can also support multi-year planning by reducing exposure to top marginal rates.”
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The IRS allows taxpayers who itemize deductions to deduct contributions made to qualified charitable organizations. According to the IRS, here are some key rules to follow:
- Donations must go to an IRS-qualified organization.
- Contributions need to be made by the end of the year to qualify for the tax year.
- Most cash and property donations are deductible up to 50% of adjusted gross income, although some donations fall under a 30% limit.
- Fair-market-value rules apply when donating property, including stocks or other appreciated assets.
Gift Long-Term Appreciated Securities
There are several ways to donate, including a debit or credit card, but Michele Frank, CPA and accountancy professor at the Miami University Farmer School of Business, recommended gifting long-term appreciated securities held in taxable accounts rather than cash.
“You will receive a tax deduction for the full market value of the securities, but will avoid having to pay capital gains taxes on the transaction,” Frank said. “Note that gifts of long-term appreciated securities to qualified public charities (including donor-advised funds) are limited to 30% of adjusted gross income (AGI) and gifts to a private foundation are limited to 20% of AGI.”
The Number of Charitable Organizations Is Up to You
You can donate to just one charitable organization or you can donate to several. It’s up to you.
“The tax impact of this decision usually comes down to how many receipts you need to manage and track down at tax time,” Richards explained. “If you regularly give to multiple charities, coordinating your donation through a Donor-Advised Fund can help streamline your giving, since you can claim a deduction now and distribute to multiple charities over time.”
There’s No Minimum Amount Required
There’s no minimum amount you can donate to claim a charitable donation. “Whether or not you receive a tax benefit from the deduction will depend greatly on your personal tax situation,” Richards said.
However, tax law does set limits on how much you can deduct each year.
A Charitable Remainder Trust (CRT) is an estate-planning tool that lets you donate appreciated assets, receive income from the trust and pass remaining funds to charity. This is typically used for high-value gifts due to setup and maintenance costs.
“Cash gifts are limited to 60% of your adjusted gross income, appreciated assets to 30% and excess amounts can carry forward for five years,” Richards added. “Advanced giving strategies [known as] CRTs generally make the most sense when donating $250,000 or more in appreciated assets, due to the complexity and setup costs.”
Don’t Miss the 2025 Deadline
If you want to deduct contributions for the 2025 tax year, you must make these donations by a specific date.
“To deduct donations for the 2025 tax year, contributions must be completed by Dec. 31, 2025,” Richards explained. “This includes gifts to a Donor-Advised Fund (DAF) or CRT. Non-cash assets like stock, real estate or business interests often require additional lead time to transfer completely, so early planning is key.”
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This article originally appeared on GOBankingRates.com: 5 Tax Strategies To Donate Wisely to Charities This Holiday Season
