Five Tips for Tax-Efficient Giving

While most individuals and families are motivated to give by a desire to support meaningful causes or create lasting impact, the law provides substantial tax incentives for donations to qualified organizations. Fully realizing these benefits requires thoughtful planning, strategic asset selection, and compliance with reporting requirements.

An effective charitable giving strategy can help maximize the value of your donation, reduce your tax liability, and align contributions with your broader financial and legacy goals. We outline key planning tips to help you optimize your giving and avoid common pitfalls.

1: Contribute assets that maximize your deduction. While cash donations are common, they are not always tax efficient. For larger charitable gifts, donating long-term appreciated securities (LTAS) — stocks, mutual funds, or other investments held for more than one year — can offer significant tax benefits:

• Deduction for fair market value. You can deduct the current market value of the securities, not just their original purchase price.
• Avoidance of capital gains tax. If you sold the securities to fund a cash donation, you would owe federal and state capital gains tax on the appreciation. By donating the securities directly, you bypass the embedded taxes.
  
  That said, gifts of LTAS are subject to different tax rules than cash donations. The total amount deductible in a single year is limited to 30% of adjusted gross income (AGI), compared to 60% for cash gifts and only 20% if the donation is made to a private foundation. Additionally, if donating non-publicly traded securities, the IRS requires a qualified appraisal for assets worth more than $5,000.

2: Consider qualified charitable distributions (QCDs). QCDs allow individuals aged 70½ or older to transfer funds directly from an IRA to a qualified charity. Key benefits include: 

• Tax-free giving. QCDs are excluded from taxable income, potentially lowering overall tax liability.
• Required minimum distribution (RMD) satisfaction. QCDs count toward RMDs without increasing adjusted gross income or tax obligations.
• Potential tax savings. A lower adjusted gross income could mean fewer limits on other tax benefits tied to income levels.

Important considerations:

• QCDs must be transferred directly from the IRA to a qualified charity; if withdrawn first and then donated, the distribution becomes taxable. QCDs cannot be directed to donor-advised funds, private foundations, or supporting organizations.
• The 2025 QCD limit is $108,000 per spouse, reduced by any deductible IRA contributions made after age 70½.
• QCDs do not qualify for a charitable deduction, because they are already excluded from income.
• No benefits are allowed. Accepting anything in return for your donation, such as event tickets, disqualifies the entire QCD.

3: Integrate charitable giving with tax and wealth planning. Strategically combining charitable giving with significant taxable events — such as Roth IRA conversions, business sales, or diversification of concentrated stock positions — can reduce your overall tax burden. A few strategies to consider:

• Offset taxable income from a Roth IRA conversion by making a large charitable gift in the same year. A donor-advised fund can be useful in this scenario, offering an immediate tax deduction and flexibility for distributing gifts to charities.
• Reduce taxes on a business sale through charitable planning. Liquidity events — such as selling a private business — are often paired with charitable planning to help reduce the tax impact of the transaction. However, be mindful of the assignment-of-income doctrine, which can require a taxpayer to recognize taxable income on both the portion of the business sold and the portion donated to charity. The timing of the charitable donation relative to the sale is critical in determining whether the doctrine applies. To ensure the tax benefits of charitable planning are not undermined, consult your Bessemer advisors early in the negotiation phase of a business sale.
• Consider split-interest vehicles, such as charitable remainder trusts (CRTs), for income planning, deferral of capital gains, and long-term charitable benefit. These tax-advantaged giving vehicles allow you to donate assets while retaining an income stream for yourself or others for life or a set term. After the trust term ends, the remaining assets go to one or more designated charities.

4: Choose a giving vehicle that optimizes tax benefits. The right giving vehicle can significantly impact the tax benefits of charitable contributions. Compared with cash gifts, other vehicles, such as DAFs, CRTs, and private foundations, can offer greater tax advantages that may better align with a donor’s philanthropic and wealth planning goals.

Charitable Giving Vehicles

Of course, there are considerations beyond tax efficiency when choosing a giving vehicle. You may also want to consider set-up costs, administrative complexity, control over investments and grantmaking, privacy, and other aspects of the various giving approaches. For a detailed comparison of these and other giving vehicles, please read “Ways to Give.”

5: Closely manage reporting requirements to protect your deduction. Charitable deductions are subject to strict IRS reporting requirements, and even small documentation errors can lead to lost deductions. To stay compliant:

• Gifts of $250 or more require written acknowledgment from recipients, including the date, amount, and whether goods or services were received in exchange.
• Acknowledgments from charitable recipients must be received before you file your tax return, not retroactively if you are audited.
• Digital assets (e.g., cryptocurrency) require a qualified appraisal for charitable gifts more than $5,000 — even if they are publicly traded. In contrast, gifts of marketable securities, such as publicly traded stocks and mutual funds, are exempt from this requirement.
• Even minor errors can disqualify a deduction, such as omitting an appraiser’s qualifications.

Make the Most of Your Giving

Thoughtful charitable planning can help maximize the impact of your giving while optimizing tax benefits. By selecting the right assets, applying tax-efficient strategies, and ensuring compliance with reporting requirements, you can maximize both the impact of your gifts and the tax benefits available to you.

Your Bessemer advisor can help you evaluate how these strategies align with your charitable and financial goals.