It’s always a great challenge to find all possible deductions that will make your tax bill as small as possible. This late in the year you may have thrown up your hands and asked, “What else can I do?” But take heart. There are still several strategies available if you are charitably-minded.

 

Appreciated assets

If you itemize deductions on your tax return, donating appreciated assets can help you increase your giving in two ways. First, you can eliminate the capital gains tax you would incur if you sold the assets yourself and donated the proceeds. The capital gains rate can be as much as 37% plus the additional 3.8% Net Investment Tax.

 

Second, you can claim a fair-market-value charitable deduction for the tax year in which the gift is made.

 

Tax-loss harvesting and a cash gift

If you have securities in your portfolio that are worth less than you paid for them, you can

  • Sell those securities that are underwater
  • Donate the cash from the sales to charity
  • Use the capital losses to offset any capital gains that year
  • Claim a charitable deduction for donating cash from the sale of securities

 

If capital losses are greater than capital gains, the net remaining loss can be carried forward to offset capital gains in future years.

 

Private business interests

Besides publicly traded securities, you may own interests in a C-Corporation, Limited Partnership, or Limited Liability Company. Giving a percentage of private business interests can be beneficial if you’ve held them more than one year and if they’ve appreciated significantly. It can also eliminate long-term capital gains you would pay if you sold the interests and then donated the cash. If you get a qualified appraiser to determine the fair market value of the private interests, you can claim the gift as a tax deduction.

 

Restricted stock

Restricted stock is shares issued to employees as part of their pay package. The employee doesn’t own the shares until they met certain conditions, such as working for the company a specified number of years or having met certain production goals. However, the company’s general counsel can remove the restrictions and the stock can be donated to and sold by a charity.

 

Donation of restricted stock allows the donor to eliminate long-term capital gains on the appreciation and claim a charitable deduction.

 

Bunch multiple years of charitable contributions into a single tax year

Let’s say you don’t have enough deductions to itemize this year and have to take the standard deduction. You’d miss out on the deductibility of your charitable donations. But it may be beneficial to combine, or bunch this year’s donation and next year’s so you can itemize, and then take the standard deduction next year. The bunching strategy, using both the itemized deductions and the standard deduction may create a larger two-year deduction that two separate years of standard deductions.

 

Name a charity as the beneficiary of your IRA

If you name anyone other than your spouse as beneficiary of your IRA, that beneficiary has to pay income taxes every time they withdraw money from the inherited IRA. For that reason, many people choose to name a charity as beneficiary. Unlike non-spouse beneficiaries, qualified charities do not have to pay taxes on IRA distributions, so the entire amount goes to the charity.

 

Qualified Charitable Distribution (QCD)

Beginning at age 70 ½, you can make Qualified Charitable Distributions from your traditional IRA to 501(c)(3) tax exempt organizations. You can give up to $100,000 each year. If you’re married, your spouse can also give up to $100,000.

 

QCDs must be sent directly to the qualified charity by the custodian or trustee of your IRA. The distributions cannot be made to donor advised funds, supporting organizations, or private foundations.  They may not be used to fund life-income gifts such as charitable gift annuities, charitable remainder trusts, or pooled income funds.

 

It’s a way to donate to charity, meet some or all of your required minimum distribution and not pay taxes on the distribution.

 

Trust Options

For some, a more formal giving strategy is appropriate using a trust.

 

Charitable Remainder Trust (CRT)

If a giver also wants a stream of income for themselves as well as a gift to charity, they may use a charitable remainder trust. The donor makes an irrevocable gift to the trust. In return, they receive income for a certain number of years or for their lifetime. At the end of the term, the charity receives whatever is left in the CRT.

 

Charitable Lead Trust (CLT)

A charitable lead trust is the reverse of a charitable remainder trust. The donor makes an irrevocable gift to the CLT. A charity receives an income stream for a certain number of years. Then what’s left is distributed to those named as beneficiaries of the CLT.

 

Donor advised fund (DAF)

A donor advised fund is actually a charity itself. A donor makes contributions to the DFA and receives a tax deduction in the year given, but the money doesn’t have to go to charitable organizations in the year given. The assets can be invested for growth and the donors can decide at a later time what charities the DFA will contribute to and in what amounts.

 

If you don’t have time to set up a charitable trust this year, you have plenty of time to get one set up before next tax season.

 

Tax deduction considerations

Overall deductions for donations to public charities, including donor-advised funds, are generally capped to 50% of adjusted gross income (AGI). However, donors may deduct up to 60% of AGI for cash gifts, while the limit on donating appreciated noncash assets held more than one year is 30% of AGI. The IRS also allows taxpayers to carry over contribution amounts in excess of the 2025 deduction limits up to five subsequent tax years.

 

Changes for 2026

 

Above-the-line charitable deductions for non-itemizers
Beginning in the 2026 tax year, a reinstated deduction allows non-itemizers to deduct cash donations to charity—up to $1,000 for single filers or $2,000 for married couples filing jointly. This provision is not indexed for future inflation, and some types of donations are ineligible for the deduction, including to donor-advised funds or private non-operating foundations.

New limits to deductions for itemizers in the top tax bracket
The new legislation caps the tax benefits of itemized charitable deductions at 35%, even for those in the 37% marginal tax bracket. In other words, these high-income filers donating $1,000 would receive a $350 deduction instead of the current $370. This change goes into effect in the 2026 tax year.

 

New floor on deductions for itemizers and corporations
Effective in the 2026 tax year, itemizers who make charitable contributions will only be able to claim a tax deduction to the extent that their qualified contributions exceed 0.5% of their adjusted gross income (AGI). For example, a couple with an AGI of $300,000 could only deduct charitable donations in excess of $1,500. Similarly, corporations will only be entitled to deduct charitable contributions to qualified charities that exceed 1% of their taxable income.

 

Charitable giving is always an important part of any financial plan. High-income individuals who itemize deductions should carefully consider the timing and amounts of their giving and have specific strategies to maximize those deductions. Let the financial planners at Alhambra Investments help you build those strategies as well as create a full financial plan tailored for your success. Contact us at info@Alhambrapartners.com.

 

 

Disclaimer:

This information is presented for informational purposes only and does not constitute an offer to sell, or the solicitation of an offer to buy any investment products. None of the information herein constitutes an investment recommendation, investment advice or an investment outlook. The opinions and conclusions contained in this report are those of the individual expressing those opinions. This information is non-tailored, non-specific information presented without regard for individual investment preferences or risk parameters. Some investments are not suitable for all investors; all investments entail risk and there can be no assurance that any investment strategy will be successful. This information is based on sources believed to be reliable and Alhambra is not responsible for errors, inaccuracies, or omissions of information. For more information contact Alhambra Investments at 1-888-777-0970 or email us at info@alhambrapartners.com.