A Simplified Overview of Tax Policy for Charitable Donations
The US government incentivizes generosity through tax policies that enable you to reduce your taxable income with charitable contributions. Simplified, this means that the money you donate to a qualifying charity can be subtracted from your taxable income, reducing the income you will be taxed on and saving you money. The deduction is affected by:
(1) The $ Amount of the Donation
Every person in the United States who files their taxes receives a standard deduction on their taxable income. The amount is dependent on the individual's situation, and in 2025, the standard deduction for a single filer was $15,750.
For individuals with large expenses that qualify for deductions (i.e. mortgage payments, medical bills, etc. itemizing your deductions can result in a lower tax burden than taking the standard deduction. Donations to registered 501(c)(3) organizations also qualify as deductions. This is why you always (or should) receive a ‘tax receipt’ for your donations from the recipient organization. Here’s what this looks like in practice:
Ms. Singh makes $100,000 a year as a marketing executive. In 2025, she donated $15,000 to her alma mater in support of a new scholarship program. She also pays $12,000 annually in mortgage interest and $4,000 in state and local taxes. Combined, her itemized deductions total $31,000. If she chose the standard deduction of $15,750, she would be taxed on $84,250. Instead, by itemizing, she is only taxed on $69,000, saving her approximately $3,355 in federal taxes (assuming a 22% marginal rate).
There is a cap on how much you can deduct. Currently, cash donations are capped at 60% of your adjusted gross income, regardless of how much you donate (*gifts of appreciated non-cash assets such as stock or real estate are generally capped at 30% AGI). For example, if Ms. Singh earns $100,000 and makes an $80,000 donation to her alma mater on top of her $12,000 in mortgage interest and $4,000 in state and local taxes, her total itemized deductions would appear to be $96,000. However, the charitable portion is capped at $60,000 (60% of her $100,000 income), so despite her generosity, she can only claim $60,000 of the donation that year. Adding her mortgage interest and state and local taxes, her total deductible amount is $76,000, reducing her taxable income from $85,000 (with the standard deduction) to $24,000 and saving her approximately $16,720 in federal taxes compared to taking the standard deduction. The remaining $20,000 in unclaimed charitable deduction is not lost! It can typically be carried forward and applied in future tax years.
*These are incredibly simplified examples. All of our clients have a number of qualifying expenses in addition to charitable donations that affect how they file. We are not tax professionals and do not offer tax advice. That said, we are always happy to work with your advisers to ensure your giving has the biggest impact on the community you serve while being financially advantageous for you and your family.
(2) Your Tax Bracket
Because a deduction reduces your taxable income, how much you save depends on the marginal tax rate. For people in higher tax brackets, deductions are worth more. For example:
Two donors each give $10,000 to charity and each choose to itemize.
Mr. Miller earns $50,000 a year and falls in the 22% bracket. His $10,000 deduction reduces his taxable income by $10,000, saving him $2,200 in taxes. His gift effectively cost him $7,800 out of pocket.
Mr. Jones earns $600,000 a year and falls in the 35% bracket. His identical $10,000 deduction saves him $3,500 in taxes. His gift effectively cost him $6,500 out of pocket.
Most Common Gifting Methods
Standard Cash Donations include a check, wire transfer, or credit card donation to a qualifying 501(c)(3) organization and are deductible up to 60% of adjusted gross income.
Appreciated Assets such as stock gifts or real estate enables you to avoid paying capital gains tax AND deduct the full market value of your gift.
Example: You bought stock for $5,000, which is now worth $30,000. If you sell it yourself, you pay capital gains tax on the $25,000 gain and then donate and claim a deduction on the remaining value. If you donate the stock directly to a qualifying charity, you pay no capital gainstax and can claim the full $30,000 as a deduction. The charity then sells the stock for $30,000 and also pays no capital gains tax!
Donor Advised Funds (DAFs) are a charitable account you fund now and distribute to charities over time. You receive the tax deduction in the year you contribute to the fund (not when the money is ultimately granted out). This makes DAFs especially powerful in high-income years, allowing you to take a large deduction immediately while thoughtfully deciding which organizations to support over time. Assets in a DAF can also be invested and grow tax-free before being distributed.
Family Foundations A private family foundation is a separate legal nonprofit entity created and controlled by the donor and their family. Contributions receive a charitable deduction, assets grow tax-sheltered, and the foundation grants money to causes the family selects, potentially in perpetuity.
Charitable Remainder Trust (CRT) is a planned giving vehicle particularly well suited for donors with large appreciated assets such as real estate or a concentrated stock position. The donor transfers the asset into the trust, which sells it free of capital gains tax. The trust then pays the donor (or named beneficiaries) an income stream for life or a set number of years, after which the remaining assets pass to charity. The donor receives a partial charitable deduction upfront. CRTs require legal setup and are most practical for gifts of $500,000 or more.
Less Common but Effective Methods
Qualified Charitable Distribution (QCD) from an IRA For donors aged 70½ or older, a QCD allows you to transfer up to $108,000 per year directly from a traditional IRA to a qualifying charity. The amount transferred never counts as taxable income — making this more powerful than a standard deduction, which only reduces income after it has been recognized. A QCD also satisfies your Required Minimum Distribution for the year, making it an especially efficient tool for charitably inclined retirees.
Life Insurance Donors can name a charity as the beneficiary of an existing life insurance policy, or donate an unwanted policy directly to a charity and deduct its fair market value. This is a low-friction option for donors who want to make a meaningful future gift without affecting their current cash flow.
* A note on all of the above: tax laws change, individual circumstances vary enormously, and the strategies above interact with each other in ways that require professional analysis. We strongly encourage all donors to work with a qualified financial adviser and tax professional when considering significant gifts. We are happy to make introductions to financial advisers we work with regularly to help you make the best decision for you and your family
