Smart ways to give charitably and get tax benefits

Charitable giving is a powerful way for taxpayers to support causes they care about while also benefiting from tax incentives. For advisors, guiding clients through the right strategy means helping them align their philanthropy with tax planning. Here are three distinct options your clients should understand.

Cash contributions For taxpayers who itemize deductions, cash gifts made to qualified charities remain among the core giving strategies. Charitable contributions that meet eligibility criteria may be reported on Schedule A (Form 1040), Itemized Deductions. Beginning in 2026, for clients who cannot itemize, an “above-the-line” deduction of up to $1,000 for single filers or up to $2,000 for married filing joint filers will be available. Advise clients to bundle donations in a year when they itemize to exceed the standard deduction threshold. Remind your clients to keep records of cash donations, including the date, amount and a letter from the organization stating whether any goods or services were provided in exchange. In 2026, a 0.5% floor will be applied to all charitable contributions. Giving now, before the rules change, can make a difference. 

Qualified charitable distributions (QCDs) from IRAs

For IRA owners age 70½ or older, a QCD allows them to direct up to $108,000 from their IRA tax-free to a qualified charity in 2025. The distribution goes directly from the trustee to the charity, isn’t included in taxable income and can count toward the required minimum distribution (RMD) for those age 73 or older. This makes it a strong tool for clients who do not itemize or who want to reduce their adjusted gross income (AGI) to lower taxable income. Because QCDs are excluded from income, they can reduce exposure to higher tax brackets, Medicare IRMAA surcharges and phaseouts of other tax benefits. To use it properly, the IRA owner must ensure the following:

• The charity qualifies under IRS guidelines.
• The transfer is made directly to the charity.
• Donor cannot receive any goods or services in return (documented in writing).
• Contribution must be completed by the end of the year.

New this year, reporting code Y has been added to Box 7 of Form 1099-R, Distributions From Pensions, Annuities, Retirement or Profit-Sharing Plans, IRAs, Insurance Contracts, etc., to identify qualified charitable distribution (QCD) transfers.

The use of code Y is optional for those preparing Form 1099-Rs for 2025 and, paired with the additional identifying numbers below, may help to identify QCD amounts.

• Code 7 from a non-inherited IRA (normal distribution)
• Code 4 from an inherited IRA
• Code K for a QCD involving traditional IRA assets, such as a self-directed IRA that may not have a recognized fair market value

Advise your clients to keep records and all documentation regarding the distribution of any QCDs.

Donor-advised funds (DAFs)

Another option you can explore with your clients is the use of a donor-advised fund (DAF). The donor contributes cash or assets to a DAF sponsor and receives an immediate tax deduction (if itemizing) while deferring decisions about which charities to fund and when. The assets can grow tax-free inside the fund. Over time, the donor can recommend (but not direct) grants to qualified charities, subject to approval by the sponsoring organization. For clients who anticipate high income in a given year or potentially large capital gains events, funding a DAF in a strong year and distributing it over several years can offer strategic tax relief. While contributions must be irrevocable and donors give up legal control of the assets, the advisory role remains. Documentation is key: keep acknowledgments, contributions, fund statements and grant recommendations.

Comparison table at a glance

What clients need to know

• Review itemization versus standard deduction. If a client’s total deductions approach or exceed the standard deduction threshold, cash contributions may move them into itemizing territory.
• Examine AGI and tax-sensitive thresholds. QCDs reduce income and help clients whose AGI controls other tax benefits.
• Align timing and income. For example, if a client has a year with high income or expected gains, they might front-load a DAF contribution.
• Document thoroughly. Across all three options, retain donor letters, receipts, transfer confirmations, fund statements and grant records.
• Monitor changes. The tax law is evolving; future limits, deduction floors and reporting requirements could shift. Pre-planning now pays dividends.

Each charitable-giving strategy has its place. Cash donations remain fundamental. QCDs offer IRA owners tax-efficient giving and income-reduction benefits. DAFs provide flexibility and planning advantages. Use IRS Publication 526, Charitable Contributions, to learn more about these charitable options for your clients and how to choose a strategy that aligns with their giving goals. Encourage them to take action before year-end to position themselves for a smoother tax filing season and more substantial philanthropic legacy.