Giving to Charity: Smarter Ways to Make an Impact

For many people, charitable giving means writing a check, making an online donation, or responding to a year-end appeal. Those approaches are simple, familiar, and meaningful.

They are also often the least tax-efficient way to give.

For the families we work with, philanthropy is rarely just a transaction. It is part of their values, their family story, and often their legacy. When charitable giving is coordinated with a thoughtful wealth plan, it can do far more good, both for the causes you care about and for your overall financial picture.

Below are several smart ways to give to charity that go beyond cash. The goal is to use the right one for your circumstances.

Donor-Advised Funds: Flexibility With Immediate Tax Benefits

A donor-advised fund, often called a DAF, is one of the most popular charitable tools available today.

You contribute assets to the fund, receive an immediate charitable deduction, and then recommend grants to charities over time. This allows you to separate the timing of your tax deduction from the timing of your actual gifts.

Why many clients use DAFs:

• You receive a tax deduction in the year you contribute
• You can bunch multiple years of giving into one high-income year
• Assets inside the fund can be invested and potentially grow tax-free
• Recordkeeping is simplified with one consolidated receipt

DAFs can be especially useful during high-income years, business sales, or when you want time to be thoughtful about which organizations to support. They are also a practical way to involve children or grandchildren in family philanthropy.

Donating Appreciated Stock Instead of Cash

If you own stocks or mutual funds that have appreciated significantly over time, donating those shares directly to charity or to a donor-advised fund can be far more tax-efficient than giving cash.

When you donate appreciated securities:

• You generally avoid paying capital gains tax on the appreciation
• You may receive a charitable deduction for the full fair market value
• The charity can sell the shares without incurring tax

This strategy is particularly powerful for investors with concentrated stock positions, legacy holdings, or portfolios that have grown substantially over the years. It can also complement portfolio rebalancing by reducing exposure while supporting causes you care about.

Qualified Charitable Distributions: A Smarter Way to Give After 70½

Once you reach age 70½, you are eligible to make Qualified Charitable Distributions, or QCDs, directly from your IRA to qualified charities.

Up to $100,000 per year can be donated this way. The distribution is reported on your tax return, but the amount given to charity is excluded from taxable income.

Why QCDs are so effective:

• They can satisfy required minimum distributions
• The charitable amount reduces the taxable portion of your IRA distribution
• Lower taxable income can help reduce Medicare premiums and the taxation of Social Security benefits

From a tax reporting standpoint, the full distribution shows up on your return, but the taxable amount is reduced by the QCD. In practical terms, the income isn’t taxed.

Many retirees take their required minimum distribution, pay tax on it, and then donate separately. Using a QCD often produces a cleaner and more tax-efficient result, particularly for charitably inclined retirees who do not itemize deductions.

Charitable Remainder Trusts: Income Now, Charity Later

A charitable remainder trust, or CRT, can be a powerful tool for those with highly appreciated assets who also want ongoing income.

With a CRT, you contribute assets to the trust and receive income for a specified period or for life. At the end of that term, the remaining assets go to charity.

Potential benefits include:

• A partial charitable deduction at the time of the gift
• Deferral or smoothing of capital gains taxes
• A predictable income stream

CRTs are often considered after the sale of a business, real estate, or a concentrated investment position. They are more complex than other giving strategies, but in the right situation they can align income needs with long-term philanthropic goals.

Charitable Lead Trusts: Supporting Charity While Planning for Heirs

Charitable lead trusts, or CLTs, work in the opposite direction. In a CLT, a charity receives income from the trust for a set number of years. At the end of that term, the remaining assets pass to your heirs.

These trusts are commonly used in advanced estate planning and may be particularly attractive when interest rates are favorable.

CLTs can help families:

• Support charitable organizations today
• Reduce potential gift and estate taxes
• Transfer wealth to the next generation efficiently

This approach is often used by families who want to integrate philanthropy directly into their long-term estate strategy.

Naming a Charity as a Beneficiary

Sometimes the most effective strategies are also the simplest.

Retirement accounts such as IRAs are often ideal assets to leave to charity because charities do not pay income tax on distributions. Heirs, on the other hand, typically do.

By naming a charity as the beneficiary of part or all of a tax-deferred retirement account, you can reduce income taxes, preserve other assets for family members, and create a meaningful gift.

The Bigger Picture

When philanthropy is thoughtfully integrated into your wealth plan, it can reduce taxes, improve cash flow, support causes you care deeply about, and reinforce the legacy you want to leave.

There is no single best way to give. The best strategy is the one that aligns with your goals, your assets, and your values.

If you are already giving, you are doing something right. If you are giving strategically, you are doing something great.

At Allworth, we believe generosity and good planning belong together. When they are aligned, everyone benefits, especially the causes that matter most to you.

This information is meant for educational purposes and not as direct tax or legal advice. Rules and regulations can shift anytime, so it’s always best to consult a qualified tax advisor, CPA, or attorney for guidance tailored to your specific situation.