If supporting your church or a favorite nonprofit is part of your routine, you probably know where you want your money to go. The less familiar question is which account it should come from, and when. For those that want to give more intentionally, these decisions can change the tax cost of giving without changing the amount a charity receives. Below are the three most common strategies we use with our clients to keep more money in their pockets and the causes they care about, and less in Uncle Sam's.
A donor-advised fund, or DAF
a DAF is a charitable account administered by a sponsoring organization. You contribute cash or investments, then recommend grants to eligible charities over time. Any charitable deduction is tied to your contribution to the fund, subject to tax rules. There is no second deduction when the fund sends money to a charity.
This makes a DAF useful for charitable clumping, also called bunching. Suppose you normally give $10,000 annually. You could contribute $30,000 to a DAF in one year, then recommend $10,000 in grants annually for three years. This illustration ignores fees and investment changes. Combining gifts may make itemizing worthwhile in the contribution year, while you take the standard deduction in other years.
For someone nearing retirement, a higher-income working year may be a good time to consider this approach. But the contribution is irrevocable. Once donated, the money belongs to the sponsoring charity and cannot fund your retirement expenses.
A qualified charitable distribution, or QCD
A QCD works differently. Once you reach age 70½, you can generally direct money from a traditional IRA to an eligible charity and keep that distribution out of your adjusted gross income. You do not need to itemize. The 2026 annual limit is $111,000 per eligible person. 1
A QCD can also satisfy all or part of your required minimum distribution, or RMD. For example, someone with a $20,000 RMD could send $5,000 directly to charity and take the remaining $15,000 personally. Assuming the IRA is entirely pretax and the gift qualifies, only $15,000 would be included in income. 1
The transfer must go directly from the IRA to the charity. Taking a withdrawal into your bank account and then writing a personal check does not qualify. QCDs cannot go to donor-advised funds, and you cannot also deduct the excluded gift. The gift should be planned before taking your RMD, since an earlier personal withdrawal cannot simply be relabeled as a QCD.
Appreciated Assets
Appreciated investments offer another opportunity. If you own stocks, ETFs, or mutual funds in a taxable brokerage account that have increased in value, consider donating shares held for more than one year directly to a qualifying public charity or DAF.
Suppose shares purchased for $6,000 are now worth $15,000. Donating the shares directly generally avoids recognizing the $9,000 capital gain. If you itemize, your potential charitable deduction is generally based on the $15,000 market value, subject to applicable limits. Selling first and donating the proceeds would recognize the gain.
This strategy can also be applied to other appreciated assets such as real estate or business interests. For larger gifts, in the multiple 6-figures, more complicated vehicles such as charitable trusts can be useful tools. But for most situations, the above strategies accomplish the stated purpose of giving more effectively, with minimal added effort.
The 2026 rules add another consideration. Itemizers generally deduct only the portion of their total charitable gifts above 0.5% of adjusted gross income. Non-itemizers may deduct up to $1,000, or $2,000 for married couples filing jointly, of qualifying cash gifts. That separate deduction excludes DAF contributions. These changes make it even more important to compare your giving options. 2,3
I would start with what you already plan to give for the year, then look at which assets and timing fit your tax situation. Before making your next substantial gift, comparing the options with your financial planner and tax professional can have a substantial impact.
Facts sourced from:
1. IRS: Publication 590-B, including the 2026 QCD worksheet
2. IRS: Publication 505 for 2026