Did you know that Americans donate over $374 billion annually to charities? Giving back feels great, but did you know you can also maximize your tax savings in the process? In this episode, Laura shares nine expert tips to help you give smarter, whether it’s understanding IRS rules, choosing the right organizations, or leveraging tax-efficient strategies like donor-advised funds.
Did you know that Americans donate over $374 billion annually to charities? Giving back feels great, but did you know you can also maximize your tax savings in the process? In this episode, Laura shares nine expert tips to help you give smarter, whether it’s understanding IRS rules, choosing the right organizations, or leveraging tax-efficient strategies like donor-advised funds.
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Giving USA says the nation's total charitable giving is over $557 billion. Individuals give 67% of that amount, more than $374 billion. Giving always makes you feel good, but the Internal Revenue Service (IRS) sweetens the pot with money-saving charitable tax deductions to encourage more giving.
That means there are IRS rules you should know to maximize your charitable giving. This post will review nine tips to give the most and receive the maximum tax advantages for yourself.
Welcome back to episode 912 of Money Girl! I'm Laura Adams, an award-winning author, on-camera spokesperson, female money speaker, founder of The Money Stack, a Substack newsletter, and host of this podcast with over 43 million downloads.
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What is a tax-deductible charitable donation?
A charitable donation is a small or large gift, such as cash or goods, you make to any individual or organization. However, for a gift to be tax-deductible, you must have donated it to an IRS-recognized charity. Also, you must itemize deductions on your tax return.
The charitable deduction applies to all gifts you make to various organizations throughout the year. You can typically deduct eligible donations that total up to 60% of your adjusted gross income (AGI).
However, depending on what you contribute and the type of organization you give it to, you may be limited to less. However, contributions exceeding annual limits can be carried over to future tax returns for up to five years.
9 tips to maximize your charitable giving
Use the following nine tips to make the most of your donations.
1. Give to qualifying organizations.
While you can give to any person or group you like, you can only claim a charitable tax deduction when an organization is tax-exempt as defined by section 501(c)(3) of the IRS code. Most public schools, religious organizations, and museums are automatically qualified as tax-exempt. If you’re unsure, ask an organization for documentation of their status or look them up on the IRS Tax Exempt Organization Search tool.
Note that specific donations, including those to individuals, political campaigns, business associations, and for-profit organizations, are never tax-deductible.
2. Know the value of your donations.
If you donate cash, you know the amount you gave. But it can get complicated when you donate property, like clothes, household possessions, or vehicles, because you can only deduct its fair market value at the time of your gift. Plus, if you get something back for a gift, such as merchandise or tickets to an event, you can only deduct the amount that exceeds its value.
When your non-cash contributions total more than $500, you must submit IRS Form 8283 with your tax return. If your non-cash donation is worth over $5,000, you must also have a professional appraisal, except when you give publicly traded securities. See IRS Publication 561 for more information on determining the value of donated property.
If you donate your time to a qualified organization, you can deduct any out-of-pocket expenses, such as fuel or transportation costs, that were necessary and unreimbursed. Or, you can claim a standard mileage deduction of $0.14 per mile to calculate your contribution.
For instance, if you drive 100 miles to do charitable work, such as attending a charitable event or bringing items to a donation site, you could claim a $14 (100 miles x $0.14) deduction, plus any tolls and parking fees. But you can't deduct general vehicle maintenance or the value of your time.
3. Document your donations.
Keep good records of your tax-deductible donations and get a receipt from the charity when possible, no matter the amount. However, if your cash or non-cash donation is worth more than $250, the IRS requires you to have a written letter acknowledging the charity name, the amount of your gift, and the date.
4. Donate appreciated non-cash assets.
If you have non-cash assets, like securities or real estate, that you want to donate, consider giving them directly to a charity instead of selling them first and donating the cash. If you owned them for more than a year, you'd avoid paying capital gains tax of 15% or 20%, depending on your income.
5. Donate assets at a loss.
If your securities, like stocks or ETFs, are worth less than their cost basis or what you paid for them, you could sell them and donate the cash to claim a charitable donation. This strategy is called tax-loss harvesting, where you use capital losses to offset capital gains or income up to $3,000. If you have losses over $3,000, you can carry them forward to offset gains and income in future tax years.
6. Contribute to a donor-advised fund (DAF).
A donor-advised fund, or DAF, is an investment account you can open to support charitable organizations you care about. When you contribute cash or non-cash assets to a DAF, you can claim an immediate tax deduction and invest the funds for tax-free growth. Then, you give the funds to a charitable organization when the timing is right for you.
I mentioned that there are annual deduction limits for charitable gifts. For cash donations, the maximum is up to 60% of your AGI. When you give non-cash gifts you have owned longer than a year, including donor-advised funds, the annual deduction limit is up to 30% of AGI. You may carry over any excess donation amount up to five additional tax years.
7. Meet the annual deadline.
For a donation to be tax-deductible, you must make it by the end of the corresponding tax year. For instance, you have until December 31, 2025, to make donations you want to claim on your 2025 tax return.
If you mail a check for a donation, the day you send it is your donation date, not the date it gets received by the charity. Likewise, the day you charge a donation on a credit card is the donation date, not the date you pay the monthly statement. If you donate securities, like stock, the donation date is the day it gets transferred to the charity.
8. Itemize your tax deductions when possible.
Every year, you can claim a standard tax deduction for your filing status or list your deductions on Schedule A Form 1040. When your allowable deductions exceed the standard amount, you're better off itemizing. However, if your total deductions are less than the standard, your charitable donations may give you lots of good karma, but they won't give you any tax benefit.
While tracking your deductible expenses and itemizing your tax return can take longer than claiming the standard deduction, the tax savings can be well worth it.
9. Bunch donations in one tax year.
If you don't have enough charitable donations and other allowable expenses to itemize on your tax return, consider waiting to make additional gifts until a future tax year. Combining contributions for multiple years into one tax year is known as bunching. That could give you a larger deduction than claiming two or more years of standard deductions.
These are just a few ways to amplify your generosity when you want to share a little or a lot of your wealth. If you want to make charitable giving part of your financial plan, work with a financial advisor who can help you use advanced strategies for leaving a legacy and cutting taxes.
That's all for now. I'll talk to you soon. Until then, here's to living a richer life!
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