Strategic Charitable Giving: How to Make Your Generosity Count
I'm in Minneapolis, and like many of my clients, I regularly see the incredible work happening in our community—from established nonprofits to grassroots organizations responding to immediate needs. The generosity I witness, particularly in moments of crisis or opportunity, is genuinely inspiring.
Here's what I've noticed: there's no shortage of opportunity to give. The Twin Cities alone has thousands of worthy causes. But creating a giving plan that matches your intentions—both where to give and how to give—requires more intentionality than many people realize.
For some, the "where" is already answered. You have causes and organizations you've supported for years. For others, identifying the right fit takes work. Community foundations, philanthropic advisors, and giving circles can help you think through impact, identify organizations aligned with your values, and even connect you directly with nonprofits doing work you care about.
But regardless of where you land on the "where" question, the "how" matters just as much. Strategic charitable planning is about intentionality, paying it forward, and helping others in need, not guilt nor obligation. Whether you're already philanthropically minded or just beginning to think about legacy and giving (to family, charity, or both), understanding your options helps you do more good with the resources you have.
How the Tax Landscape Has Changed
The One Big Beautiful Act (OBBA), passed in 2025, fundamentally changed how charitable contributions are treated for tax purposes. Whether these changes help or hurt you depends entirely on your situation—which is exactly why strategic planning matters more than ever.
The good news for non-itemizers: Taxpayers who take the standard deduction can now claim a charitable deduction—$1,000 for single filers and $2,000 for married couples filing jointly. This is an "above-the-line" deduction, meaning it reduces your adjusted gross income regardless of whether you itemize.
This expands charitable giving opportunities for millions of households. In recent years, the high standard deduction meant that charitable gifts provided no tax benefit for non-itemizers. This new provision changes that calculus, at least for cash contributions. Note the limitation: only cash gifts count toward this above-the-line deduction. Donations of securities, contributions to donor-advised funds, or other non-cash gifts don't qualify.
The mixed picture for itemizers: OBBA also increases the number of taxpayers who will itemize, particularly in higher-tax states like Minnesota, due to increased SALT (state and local tax) deduction limits. More itemizers means more people who can benefit from the full range of charitable giving strategies.
But there's a catch (Well, actually, two catches):
There's now a 0.5% of AGI floor on charitable deductions. If your charitable giving doesn't exceed 0.5% of your adjusted gross income, it doesn't count at all for tax purposes.
For taxpayers in the 37% marginal tax bracket, itemized deductions are limited to thirty-five cents per dollar.
What that means in practice:
If your joint household income is $500,000 and you give $20,000 to charity, your charitable deduction on Schedule A is reduced by $2,500 (0.5% of $500,000), leaving you with a $17,500 deduction. Since all income falls below the 37% marginal tax bracket, no additional adjustment is required.
Additionally, there are other variables to consider, such as the 60% of AGI cap on itemized deductions for cash contributions to public charities and the 30% of AGI cap on itemized deductions for appreciated non-cash assets (such as stock). Remember, if you exceed the cap, you can carryforward any unused deduction for up to five years.
For high-income households making substantial charitable gifts, this creates a new planning challenge. The strategies we'll discuss below—bunching contributions, using donor-advised funds, timing gifts strategically—matter more now than they did before.
All of this is to say: the new tax law significantly impacts charitable giving. And now, as always, it behooves you to coordinate your giving with thoughtful tax and financial planning with your professional advisors. The mechanics matter, and getting them right can mean significantly more resources flowing to causes you care about, and significantly less tax for you.
You can learn more about the OBBA's charitable provisions here.
The Foundation: Simple and Effective Strategies
Cash
The simplest option is cash. Write a check, make an online transfer, and you're done. Fast, straightforward, and exactly what organizations need when they're responding to urgent situations.
Under the new tax law, cash has an added advantage: it's the only type of contribution that qualifies for the above-the-line deduction available to non-itemizers. If you're taking the standard deduction, cash gifts up to $1,000 (single) or $2,000 (married) still provide a tax benefit.
For itemizers, cash gifts remain deductible up to 60% of your adjusted gross income, subject to the new AGI floor and reduction provisions described above.
Appreciated Securities
This is where many high-net-worth donors start getting strategic, and under the new tax law, this strategy becomes even more valuable for those who itemize.
Instead of writing a check, you transfer stock, ETFs, or mutual funds directly to a qualified nonprofit.
Why does this matter? Let's say you own stock you purchased for $10,000 that's now worth $50,000. If you sell it and donate the cash, you'll pay capital gains tax on that $40,000 gain. If you donate the stock directly, the charity receives the full $50,000, you avoid the capital gains tax entirely, and you still get a charitable deduction for the full fair market value.
Given the new AGI-based reduction on charitable deductions, avoiding capital gains becomes even more valuable. You're not adding to your AGI (which would increase the reduction calculation), and you're still getting credit for the full fair market value of the gift.
There's some paperwork involved—your brokerage or financial advisor will have a process for this—but the transfer happens efficiently, and the tax savings can be substantial. Most established nonprofits are set up to receive securities and will gladly walk you through the process.
Donor Advised Funds (DAFs)
If appreciated securities are where people start getting strategic, donor-advised funds are where they really unlock flexibility.
Here's how DAFs work:
You make a contribution to the fund (cash, securities, or, in some cases, more complex assets such as private business interests or real estate).
You get an immediate tax deduction for that contribution.
Then, over time, you recommend grants from the fund to qualified charities.
Once you have a DAF established, giving becomes remarkably simple. No paperwork for each individual gift. No tracking multiple tax receipts. Just log in and direct funds to organizations as you see fit.
Under the new tax law, DAFs become particularly strategic:
Bunching contributions to Clear the AGI Hurdles:
The OBBA introduces two separate hurdles for itemizers. First, there's a 0.5% of AGI floor on charitable deductions—if your giving doesn't exceed this threshold, it doesn't count. Second, once you clear that floor, your deduction is reduced by 1% of your AGI.
Additionally, taxpayers in the highest tax bracket (37%) face an additional limitation: itemized deductions are capped at 35 cents per dollar, rather than the full 37 cents.
Here's what this means in practice: If your household AGI is $500,000 and you give $20,000 to charity:
The 0.5% floor is $2,500, so you clear that threshold
Your deduction is then reduced by $5,000 (1% of AGI)
This leaves you with a $15,000 charitable deduction
If you're in the top bracket, you face an additional reduction on that $15,000
Bunching multiple years of giving into a single year by contributing to a DAF helps you:
Clear the 0.5% floor more easily with a larger contribution
Make the 1% AGI reduction less painful as a percentage of your total gift
Potentially avoid or minimize the top-bracket limitation by making gifts in years when you're not at the highest income levels
Itemize in the bunching year (when your deductions are high) and take the standard deduction in other years
Still distribute grants from the DAF annually to maintain your giving pattern
For example, instead of giving $20,000 annually (and losing $5,000 to the AGI reduction each year), contribute $100,000 to a DAF every five years. In the bunching year, the $5,000 reduction represents only 5% of your gift, rather than 25%, and you may be able to time it strategically relative to the top-bracket limitation.
Managing Volatile Income:
If you're a business owner with variable income, selling a business or property, or an executive receiving RSUs that vest in concentrated bursts, a DAF lets you make larger charitable contributions in high-income years (timing them strategically around applicable limitations) while distributing grants more evenly over time.
Anonymous Giving:
DAF grants can be made anonymously if you prefer privacy.
Investment Growth:
Assets in a DAF can be invested and potentially grow tax-free, meaning more money is available for charitable purposes down the road.
Qualified Charitable Distributions (QCDs)
This is one of my favorite strategies for retirees over age 70½, and under the new tax law, it's become even more valuable.
Here's how QCDs work. Once you reach 73 (as of 2024), you're required to take minimum distributions from your traditional IRA, whether you need the money or not. Those distributions are taxable income. For many retirees, this can create an unwanted tax burden. For example, a retiree with ample pension income, Social Security, and other investment income, is now forced to take excess IRA distributions they don't need. Worse, the problem worsens as the required distribution increases annually with age.
A Qualified Charitable Distribution lets you give up to $111,000 (for 2026, adjusted annually for inflation) directly from your IRA to a qualified charity. For a married couple, each spouse can make a QCD of up to $111,000, for a total of $222,000.The distribution counts toward your required minimum distribution, but it's not included in your taxable income.
Here's why QCDs matter even more now: The new charitable deduction limitations are based on AGI. A QCD doesn't increase your AGI at all. In fact, the distribution never shows up as income. This means:
You avoid the 0.5% floor issue entirely (QCDs aren't subject to it)
You avoid the 1% AGI reduction (because you're not claiming a deduction)
You keep your AGI lower, which affects Medicare premiums, taxation of Social Security benefits, and other income-sensitive calculations
You get the tax benefit even if you don't itemize
For retirees with limited cash liquidity but substantial IRA balances, QCDs are often the most tax-efficient way to give. There's paperwork involved—your IRA custodian needs to make the distribution payable directly to the charity—but once you've done it once, the process becomes routine.
Advanced Strategies: When Simple Isn't Enough
For some families, the strategies above handle charitable planning beautifully. But if you're dealing with significant wealth, complex assets, or multigenerational giving goals, there are more sophisticated tools worth considering.
Charitable Remainder Trusts (CRTs)
A charitable remainder trust is essentially a split-interest gift. You contribute assets to the trust, receive income for a period of years (or for life), and when the trust terminates, the remaining assets go to charity.
CRTs make sense when you:
Have highly appreciated assets you want to diversify without triggering immediate capital gains
Want to create an income stream for yourself or family members
Are charitably inclined but not ready to make an outright gift
Have assets like real estate or private business interests that are difficult to give directly
For example, let’s say you own a rental property purchased decades ago that has appreciated significantly. You'd like to sell it and reinvest more efficiently, but the capital gains tax is prohibitive. You contribute the property to a CRT, the trust sells it tax-free, reinvests the proceeds, and pays you (or you and your spouse) an income stream for life. When you both pass away, the remaining trust assets will be distributed to the charities you've designated.
You get an immediate partial tax deduction when you fund the trust (subject to the new AGI limitations), you avoid immediate capital gains, you create retirement income, and you ultimately support causes you care about. The tradeoff is complexity—CRTs require legal and administrative oversight—and loss of access to the principal.
Given the new AGI-based reduction on charitable deductions, the timing of when you establish a CRT matters more than before. High-income years might not be ideal if the AGI reduction significantly diminishes your deduction. This is where comprehensive planning across multiple tax years becomes essential.
Charitable Lead Trusts (CLTs)
A CLT works in reverse: the charity gets income first, and your heirs receive the remainder later.
These are primarily estate planning tools. You fund the trust, it pays a fixed amount to charity each year for a term of years, and when the trust terminates, remaining assets pass to your children or other beneficiaries.
CLTs are useful when:
You want to transfer wealth to heirs at a reduced gift/estate tax cost
You have assets you expect to appreciate significantly
You're charitably inclined but want your family to ultimately benefit from the assets
You have more than enough for retirement and are focused on efficient wealth transfer
The math gets technical, but essentially, the charitable payments reduce the gift's taxable value to your heirs. If the trust assets grow faster than the IRS assumed they would, your heirs receive more than expected, and the excess growth passes to them tax-free.
CLTs are less affected by the new charitable deduction changes because they're primarily estate planning vehicles rather than income tax strategies. But for families thinking holistically about wealth transfer and charitable impact, they remain powerful tools.
Private Foundations
A private foundation is your own charitable entity. You fund it, control it, and direct all grants from it.
Foundations offer maximum control and can be powerful family legacy tools, but they come with significant responsibility:
Advantages:
Complete control over investment strategy and grantmaking
Can employ family members
Perpetual existence (can last for generations)
Can make grants to individuals or non-charitable purposes if structured properly
Enhanced credibility when making large grants or working directly with grantees
Disadvantages:
Excise tax on net investment income
Required minimum distributions (5% of assets annually)
Strict rules about self-dealing and excess business holdings
Public disclosure requirements (Form 990-PF)
Administrative costs and complexity
Lower deduction limits (generally 30% of AGI for cash, 20% for appreciated assets), subject to the new floor and reduction provisions
Most families don't need a private foundation until they're contemplating eight-figure charitable commitments. For many, a DAF provides 80% of the benefit with 20% of the hassle.
But if you want to involve multiple generations in grantmaking, need operational control, or are funding specific charitable projects that require ongoing oversight, a foundation might make sense.
Charitable LLCs
For families who want philanthropic impact without the constraints of a foundation or the limitations of a DAF, a charitable LLC can offer an interesting middle ground.
Unlike a foundation, an LLC can:
Make grants to individuals or for-profit social enterprises
Engage in political activity
Invest in mission-aligned businesses
Operate with more flexibility and less public scrutiny
The tradeoff is that contributions to a charitable LLC are not tax-deductible. You're giving up the tax benefit in exchange for flexibility.
This approach has gained traction among tech entrepreneurs and impact investors who view philanthropy less as traditional charity and more as strategic capital deployment. It's not right for everyone, but it's worth knowing the option exists.
Bringing It All Together
Strategic charitable giving isn't about extracting maximum tax benefit from every dollar. It's about alignment—ensuring the mechanics of your giving align with your intentions.
Sometimes that means writing a check because speed and simplicity are important. Sometimes it means using a QCD because you're managing IRA distributions and AGI strategically. Sometimes it means bunching contributions into a DAF to navigate the new AGI limitations efficiently. Sometimes it means establishing a CRT because you're solving multiple problems at once: diversification, income, tax efficiency, and charitable impact.
At Trailhead Planners, we work with clients who are intentionally planning for legacy and giving, whether to family, to charity, or both. Charitable planning isn't a standalone exercise; it's woven into comprehensive wealth planning alongside tax strategy, investment management, estate planning, and business advisory work.
If you're charitably inclined and want to ensure your giving is as strategic as the rest of your financial life, these tools exist to help you do exactly that. Whatever the amount, the point is to give in a way that reflects your values and makes the most of your resources.
And in times when generosity is needed most, getting that right matters.
Trailhead Planners is a Minneapolis-based wealth advisory firm serving entrepreneurs, business owners, and legacy-focused families. Morgan Ranstrom, CFP®, CFA, is a founding partner, lead wealth advisor, and author of Money with Purpose: Receive the Dividends of an Undivided Financial Life. If you're interested in exploring how charitable planning fits into your overall wealth strategy, we'd be glad to talk.