Charitable giving and income tax planning are not separate conversations. For advisors working with clients who give regularly, or who want to, understanding the tax levers available can meaningfully improve the efficiency of both the financial plan and the philanthropy.
Pinellas Community Foundation works with advisors on a range of charitable giving strategies that align tax planning with client generosity. Here is a practical overview of the most effective approaches.
1. Bunching Contributions into a Donor Advised Fund
The 2017 Tax Cuts and Jobs Act nearly doubled the standard deduction, which reduced the tax benefit of charitable giving for many clients. The fix is a strategy called bunching.
Rather than donating a consistent amount each year, and potentially never exceeding the standard deduction, clients contribute two or three years’ worth of planned giving into a donor advised fund (DAF) in a single tax year. They take the itemized deduction in that year (often significantly above the standard deduction threshold), then recommend grants from the fund to their chosen nonprofits over the following years at their normal pace.
The giving pattern does not change. The result is often a more tax-efficient charitable giving pattern. PCF administers donor advised funds and can accept the lump contribution, issue the tax receipt, and hold the funds while the client distributes grants on their preferred schedule.
2. Contributing Appreciated Securities Instead of Cash
When a client contributes appreciated securities directly to charity or to a donor advised fund (DAF), two tax benefits generally apply simultaneously. This can include stock, mutual fund shares, or ETFs held for more than one year.
- The client generally avoids immediate capital gains tax on the appreciation.
- The client may generally deduct the fair market value of the securities, up to 30% of adjusted gross income (AGI), with a five-year carryforward.
This is consistently one of the highest-impact charitable giving strategies available. A client who would otherwise sell securities, pay capital gains tax, and donate the after-tax proceeds may reduce the overall efficiency of the gift. Contributing the securities directly, to PCF or a DAF at PCF, captures the full value of the gift.
PCF accepts publicly traded securities directly. For closely held stock or more complex assets, we work with advisors to structure the contribution appropriately.
3. Qualified Charitable Distributions for Clients 70½ and Older
Clients aged 70½ or older who hold traditional IRAs have access to a powerful giving tool: the qualified charitable distribution (QCD). A QCD allows a client to transfer up to $105,000 per year (indexed for inflation) directly from their IRA to a qualified charity, without the distribution counting as taxable income.
For clients who do not need the required minimum distribution (RMD) for living expenses, a QCD effectively redirects money that would otherwise be taxed into charitable giving, reducing AGI, which in turn can affect Medicare premiums, Social Security taxation, and other income-dependent thresholds.
Important: QCDs cannot be made to a donor advised fund. They must go directly to a qualifying public charity. PCF can receive QCDs directly as unrestricted gifts or into a designated fund, but not into a DAF. Confirm the appropriate fund structure with your client before processing.
4. Charitable Remainder Trusts for Appreciated Assets and Income Planning
For clients with a highly appreciated asset such as real estate, a concentrated stock position, or a business interest, a charitable remainder trust (CRT) can address capital gains, provide an income stream, and generate a charitable deduction, all within one structure.
The client contributes the asset to the trust, which can then generally sell it without triggering immediate capital gains tax to the donor. The trust pays the client an income stream for the trust’s term, and the remaining assets pass to the named charitable beneficiary, such as PCF, at the end.
The client receives a partial charitable deduction in the year of funding, based on the present value of the projected remainder. This strategy often allows advisors to address income tax planning, estate planning, and charitable objectives within a single structure.
5. Year-End Giving Coordination
For advisors who do year-end tax planning with clients, charitable giving is a lever worth including in that conversation. High-income years, business sales, large bonuses, Roth conversions, or significant capital gains events create opportunities to pair giving with tax impact in ways that are not available in ordinary years.
A contribution to a DAF at PCF before December 31 locks in the deduction for that tax year, even if grant distributions do not happen until the following year or later. For clients who have not finalized which nonprofits to support, this preserves the deduction while giving the client additional time to evaluate grant recommendations thoughtfully.
PCF as a Year-Round Tax Planning Partner
PCF is not a tax advisor, and we do not provide tax or legal guidance. What we do provide is the charitable infrastructure including donor advised funds, planned giving vehicles, expert knowledge of the local nonprofit landscape that makes these strategies practical to execute.
Advisors who work with us regularly find it useful to loop PCF in early in the year-end planning process, so that contribution timing, asset type, and fund structure can all be coordinated without a last-minute scramble in December.
Let’s coordinate: PCF works with advisors year-round on contribution timing and giving strategy. Reach out at pinellascf.org to connect with our advisor team or schedule a meeting with Meg Lokey, Vice President of Philanthropy. Book a meeting here.
