A Guide to Charitable Giving Strategies
Holidays are a great time to support the causes that matter most to you. The season inspires us to give back to the communities that support us. Here in Indiana, we see this spirit of generosity every day. At Encompass, we believe that your contributions should make the biggest impact possible for the charity you support as well as your own financial well-being.
This guide will walk through the essential charitable giving strategies to help you make the most of your contributions this year-end and beyond. We’ll explore practical strategies to maximize your charitable impact while strategically lowering your tax bill.
How Charitable Deductions Work
Before diving into the strategies, it’s important to understand the foundation. How do charitable deductions work? To receive a tax benefit for your donations, you must:
Donate to a Qualified Charity: A common misconception is that all tax-exempt non-profit organizations qualify donors for a deduction. The organization must be a 501(c)(3) tax-exempt organization. These non-profits primarily operate for religious, charitable, scientific, literary, or educational purposes. Most 501(c)(4) social welfare organizations are not eligible. You can verify an organization’s status using the IRS Tax Exempt Organization Search Tool.
Itemize Your Deductions: To deduct charitable contributions, you must itemize your deductions on your return instead of taking the standard deduction. Your total itemized deductions (including charitable gifts, state and local taxes, mortgage interest, etc.) must be larger than the standard deduction for it to be advantageous for you.
What's the difference between cash and noncash charitable contributions?
A cash contribution is probably what most people think of when they hear "donate to charity"; it's the gift of money or monetary equivalents. This could be physical cash, a check, debit/credit card payment, payroll deductions, or online payments through a platform like Venmo or CashApp.
Many types of assets qualify as noncash charitable contributions. These donations can be "tangible" goods, ranging from clothing or furniture that you bring to Goodwill to a commercial real estate building that's donated to a non-profit. They can also be "intangible" assets, such as stocks and bonds, or intellectual property like patents, copyrights, or trademarks.
So, while there are a lot of different ways to give, there's also a plethora of different types of donations that can not only benefit an organization but can also provide you with the flexibility to give what you can to further optimize your impact.
Charitable Contribution Limits and Documentation
The IRS has rules on how much you can deduct and what proof you need to provide.
What are the Charitable Contribution Limits?
Your deduction is limited to a percentage of your Adjusted Gross Income (AGI). For cash donations, you can deduct up to 60% of your AGI. For non-cash donations, the limit is typically 30% of your AGI. If you donate more than this, you’re not out of luck. Any amount contributed above these limits can be carried over and deducted for up to five years.
How Much Can You Claim in Charitable Donations Without a Receipt?
In some cases, you can claim a donation without a receipt, but some kind of documentation will always be needed.
For cash contributions less than $250, you can claim the deduction with your bank records or credit card statements. However, donations of $250 or more require a receipt or written acknowledgement from the charity.
For non-cash contributions over $500, you must keep the receipt and file IRS Form 8283 with your tax return. If the contribution is over $5,000, you must have a qualified appraisal of the donated item(s) in addition to Form 8283.
Four Smart Charitable Giving Strategies
1. Donate Appreciated Assets Instead of Cash Contributions
Instead of writing a check, consider donating long-term appreciated assets, such as stocks or real estate that you’ve held for more than a year. The reason this is preferable is because you get a double tax benefit.
You can deduct the full fair market value (FMV) of the asset at the the time of the donation.
You avoid paying capital gains tax on the appreciation.
Example: You want to donate $10,000. You could sell a stock worth $10,000 that you originally bought for $2,000, pay capital gains tax on the $8,000 profit, and donate the rest. Or you could donate the stock directly to the charity. The charity is able to sell the stock tax-free, and you get a $10,000 deduction while avoiding capital gains tax.
2. Bunch Your Donations
Since the standard deduction doubled in 2017 along with other restrictions made to itemized deductions, many people don’t have a large enough tax deduction to benefit from itemizing each year, with only 8% of individual filers itemizing their returns in 2022.
Instead of donating each year, a more advantageous route for many is “bunching.” Bunching means to consolidate two or more years’ worth of charitable contributions into a single year, allowing you to exceed the standard deduction threshold in your year of giving.
Example: You typically donate $12,000 every year. From charitable giving and other itemized deductions, your total itemized deductions per year equal $17,000. Since the standard deduction for the 2025 tax year is $15,750, you’re only getting $1,250 more in deductions than the standard. If you’re in the 35% income tax bracket, you’re saving $437.50 per year, or $1,312.50 over three years.
Instead, you could bunch those $12,000 donations into a single year, making a one-time gift of $36,000. This deduction along with the same $5,000 worth of itemized deductions puts you at $41,000—$25,250 over the standard deduction—giving you a tax savings of $8,837.50. Even with taking the standard deduction over the next two years, your benefit in a three-year span is still over $7,000 higher from bunching.
3. Utilize a Donor-Advised Fund (DAF)
A good vehicle for bunching is through a Donor-Advised Fund (DAF). A DAF is like a charitable investment account. As soon as you make a charitable contribution, you are eligible for an immediate tax deduction, the same way you would be by donating directly to a public charity. As you make contributions of cash or appreciated assets to your DAF account, they are then invested and can grow tax-free, potentially increasing the amount you have available to give. Then you can recommend “grants” from your DAF to your preferred qualified charities over time.
This allows you to receive the immediate tax benefits but provides you with the flexibility to plan how you want to make your gifts to qualified charitable organizations.
4. Qualified Charitable Distribution (QCD) for Retirees
If you are 70½ or older, you can make a Qualified Charitable Distribution (QCD) of up to $108,000 per year directly from your IRA to a charity. If you are 73 or older, a QCD can satisfy all or part of your Required Minimum Distribution (RMD) for the year.
The donated amount is excluded from your taxable income, which can be even better than an itemized deduction. It can help lower your AGI, potentially reducing your Medicare premiums and taxes on Social Security benefits.
Make an Impact Here at Home: Supporting Indiana Communities
As proud members of Howard, Tipton, and Clinton counties, we feel strongly about offering actionable ways to make a difference to our neighbors. While these strategies work for any qualified charity, consider using them to support the incredible non-profits in your local community. Supporting local organizations keeps your dollars in the community, strengthening the foundation that makes our home a wonderful place to live and work.
Plan Your Holiday Giving with Confidence
By planning your charitable giving, you can ensure your generosity has a lasting legacy. Combining your passion for a cause with smart financial strategies like donating appreciated assets or using a DAF can create a powerful ripple effect for good.
At Encompass, we are committed to helping you achieve your financial and philanthropic goals. If you have questions about how these strategies might fit into your overall financial plan, we’re here to help.
Disclaimer: This information is for educational purposes only and is not intended as tax or legal advice. Please consult with a qualified tax professional or financial advisor to discuss your specific situation.