Year-end charitable giving: Strategies to maximize impact and tax benefits

By Gina Coletti and Mark Hannon

As the holiday season approaches, many people look for ways to give back—and here’s how to do it while also making smart financial decisions. Year-end charitable giving offers a unique opportunity to support causes you care about and reduce your tax burden before December 31. Whether you’re donating cash, securities, or other assets, thoughtful planning can help you maximize both your impact and your tax benefits.

Be mindful of key year-end deadlines

Timing is critical when planning charitable gifts and year-end giving. While cash donations are generally deductible, as long as they are postmarked or completed by December 31, other types of gifts require more lead time. Transfers of appreciated securities often take several business days to process, and custodians may have earlier cut-off dates during the holiday period. If you plan to contribute to a donor-advised fund, initiate the transfer well before year-end to ensure the deduction counts for the current tax year.

Non-cash gifts may also require valuations or appraisals, so it is best to begin that process early to avoid delays that could jeopardise your ability to claim the deduction.

Choose the right giving vehicle

It’s important to choose the right structure for your charitable contributions. Popular options include:

• Donor-advised funds (DAFs): DAFs allow you to make a tax-deductible contribution now and decide later which charities will receive the funds. This flexibility ensures you lock in the deduction for the current year while giving yourself time to evaluate recipients and plan your impact.
• Private foundations and charitable trusts: These vehicles are often favored by high-net-worth individuals seeking to create a philanthropic legacy, as they allow ongoing charitable activity.
• Qualified charitable distributions (QCDs): You can donate directly from your retirement account to a qualified charity to satisfy required minimum distributions and reduce taxable income. Age thresholds and contribution limits may apply.

Consider a bunching strategy to maximize deductions

For many taxpayers, especially those whose itemized deductions fall close to the standard deduction amount, “bunching” charitable contributions can be an effective strategy. By concentrating multiple years’ worth of charitable gifts into a single tax year, you may exceed the standard deduction threshold and benefit from itemizing.

Donor-advised funds play a useful role here: you can take the deduction today while distributing grants to charities over time. Coordinating this approach with your adviser can help you achieve a more predictable tax outcome.

Understand charitable tax deduction limits and rules

Charitable contributions can play a meaningful role in a well-designed tax strategy, particularly when coordinated with your income level and long-term investment planning. Donating appreciated assets, such as publicly traded securities, allows you to avoid the capital gains tax that would be due if you sold the asset during a high-income year. Because the deduction for appreciated property is generally based on fair market value, this approach can provide a larger tax benefit than donating cash.

Your marginal tax bracket also affects how valuable the deduction will be. Taxpayers in higher brackets typically receive a greater tax benefit from itemized deductions, making year-end contributions an effective way to offset income spikes, such as bonuses, business distributions, or portfolio gains. When timed strategically, charitable giving can help smooth taxable income across years, manage exposure to net investment income tax, and align your philanthropic goals with broader financial planning objectives.

Charitable deductions will vary based on the type of asset you donate:

• Cash donations: You can deduct up to 60% of your adjusted gross income (AGI).
• Appreciated securities: Donations of low-basis stocks are common, but deductions are capped at 30% of adjusted gross income (AGI).
• Carry-forward provision: If your contributions exceed these limits, you can carry forward the excess for up to five years.

Working with tax advisers to evaluate which assets to give, the timing of gifts, and how those choices interact with your overall tax position can help maximize both the charitable impact and the tax efficiency of your year-end giving.

Special considerations for non-cash gifts

If you are planning to donate property, such as artwork, jewelry, or vehicles, be aware of the following:

• Non-cash gifts over $5,000 will generally require a qualified appraisal to substantiate the deduction.
• For inherited assets, estate appraisals often satisfy this requirement, simplifying the process.

Make your giving count

Year-end charitable giving is more than a financial strategy; it’s a chance to support the causes that matter most to you and make a meaningful difference. By choosing the right giving vehicle, understanding deduction limits, and aligning your contributions with your values, you can maximize both your impact and your tax benefits. Nixon Peabody Trust Company can help you navigate these decisions to ensure your generosity creates lasting change for the causes you care about.

Gina Coletti
Chief Fiduciary Officer
Office: +1 617.345.1110
gcoletti@nixonpeabody.com

Mark Hannon
Director of Tax Services
Office: +1 617.345.1064
mhannon@nixonpeabody.com