Tax-Efficient Ideas for Charitable Giving in 2025
By Kevin G. Henry
While there are things for anyone to like or dislike in the July 4, 2025 One Big Beautiful Bill Act (OBBBA), it did make permanent certain provisions that you and your tax preparers now can rely on to plan for your charitable giving as well as what you may owe in taxes.
A. Non-itemized Charitable Deduction. The best new and universally beneficial addition to promote charitable giving was creation of an above-the-line $1,000 single/$2,000 married charitable deduction for Non‑Itemizers. (This is similar to the $300 Covid‑era charitable deduction, but larger.) This deduction directly reduces your adjusted gross income (AGI), saving both federal income tax and also for Seniors, potentially reducing the amount of your Social Security benefits that are taxable.
B. Increased Standard Reduction. OBBBA also made a permanent increase in the Standard Deduction to $15,750 single/$31,500 married, indexed for inflation in the future.
C. Senior Deduction. On top of that, OBBBA created a four year (2025-2028) additional Senior (over age 65) Deduction of $6,000 for singles with income below $75,000 and married couples with income below $150,000. The combination of these two changes increases the likelihood that most Seniors will no longer itemize deductions to expressly take charitable deductions on Schedule A.
Strategy for Seniors to Make Charitable Gifts
Because of the increased unlikelihood of itemizing deductions, for Seniors already taking IRA withdrawals, the strategy of using Qualified Charitable Deductions (QCDs) to make direct charitable or church gifts from your IRA that count as RMD withdrawals (without counting as taxable income), remains the most tax-efficient way to make charitable gifts, period. [1]
Strategies for People of any Age
Bundling Charitable Deductions. In order to itemize deductions with the higher standard deduction threshold, it can be advantageous for you to “bundle” and make all charitable contributions every other year, to help you amass larger deductions and exceed your standard deductions amount. For example, in Year 1 you would take the standard deduction with little or no charitable giving, but save up the amount of planned gifts for Year 1 and then in Year 2 give the equivalent of two (2) years charitable contributions and thus be able to itemize your deductions on Schedule A in Year 2. [2] To help your charitable recipient’s budget, maybe give the Year 1 gift in January of Year 2, and the Year 2 gift amount in December of Year 2.
Donor-Advised Fund. An alternative to “bundling” is to have your stockbroker set up a Donor-Advised Fund (“DAF”) account, into which you can periodically transfer cash or stocks (with unrealized gain appreciation in value). The amount you transfer to the DAF is deductible as a charitable contribution (if it puts you above the standard deduction) in the year of the transfer. Then you may direct charitable gifts out of the DAF in any later year (but you only get the deduction once). The DAF account remains invested and may grow tax‑free until distributed out, increasing the impact of your gift. All major stockbroker firms offer DAF accounts, at minimal cost.
Direct Stock Gift Transfer. A great tax‑avoidance tax strategy is to make direct stock transfer gifts to a church or charity. If you own a regular securities brokerage account (not retirement), you can instruct your broker to make direct stock transfers as a gift to a church or charity. Where stock has Unrealized Gain shown on your account statement, meaning that it has increased or appreciated in value above your original cost, if you personally sold this stock in order to use the net proceeds to fund a charitable donation, you would pay capital gains tax on the increase in value. By making the direct stock gift to the church or charity, the charitable recipient pays zero tax and receives the maximum full current fair market value for the stock given, enabling the amount of your gift to be larger than if you sold the stock yourself and had to pay tax before making a cash donation. Your church or charity will provide you or your stockbroker its own broker account information for the stock transfer. Stock gifts are deductible if you are eligible to itemize.
Strategies for Charitable Giving at your Death
Designating a church or charity as a beneficiary of a portion of your retirement account (IRA, 401k or 403b) – if not entirely needed for the later support of your spouse or a minor child – is an ideal way to forever avoid income tax on the tax deferred retirement account, since the charity pays zero tax. You can do this on a Beneficiary Designation form provided by your retirement plan administrator.
Another reason you might want to use your taxable retirement account for charitable gifting is that non‑spouse beneficiaries of retirement accounts like children or grandchildren have to pay income tax on the entire amount of your retirement account they inherit within ten (10) years. They cannot “stretch out” the RMD payments over their life expectancy. Only your spouse can do that, and whatever is left in the retirement account at the death of your spouse will then be subject to the 10‑year non‑spouse beneficiary RMD rule.
When doing income tax planning for gifts at death to your children and grandchildren, be aware that assets like your house, other real estate or a regular stock account receive a “stepped up” valuation for tax basis to current fair market value at your death. A charity does not need this increase in tax basis, but it would greatly benefit your spouse, children or grandchildren to inherit such property at stepped‑up value in case they later sell the inherited property. Therefore, if you have charitable inclinations at your death, think first about using tax‑deferred retirement accounts for death charitable giving, and leaving other appreciated property held in your individual name or in a Revocable Trust to family members at your death.
Important Note: It makes no sense to use a Roth IRA or Roth 401k for your charitable giving – you have already paid tax on it and it can go to your spouse and/or family members completely tax‑free.
Disclaimer
Always consult with your accountant, tax preparer or investment advisor before you make decisions about stock gifts, QCDs from an IRA, bundling charitable gifts, or other tax planning. The above are only general concepts that may not be of significant benefit or suitable for your particular income and tax situation or objectives.
Kevin G. Henry is a business and trusts and estates attorney at Sturgill Turner. He can be reached at khenry@sturgillturner.com or (859) 255-8581. This article is intended as a summary of some federal tax provisions and does not constitute legal advice.
[1] To report your QCD as a reduction of your taxable income (not a “deduction” on Schedule A), go to line 4 of your Form 1040 where you report IRA distributions. You receive a Form 1099-R from your IRA custodian. Enter the full Distribution amount it shows on line 4a of your tax return. Then subtract the QCD amount sent to charity and enter the difference on line 4b Taxable Distributions (even if it is $0) write “QCD” beside it. This will reduce your Adjusted Gross Income (“AGI”) at the bottom of page 1 of your tax return. Do not claim a QCD charitable gift as a deduction on Schedule A, Itemized Deductions.
[2] Schedule A itemized deductions may now include (a) up to $40,000 for state and local income tax and property taxes (the “SALT deduction”), plus (b) home mortgage interest you pay, and (c) up to $10,000 auto loan interest you pay. So if adding your charitable gifts would cause the total of all those deductions to be greater than the standard deduction amount, you can itemize for that year. The SALT and auto loan interest changes may help more people be eligible to itemize deductions above the standard deduction. OBBBA sets a new threshold that charitable deductions are subject only to a deductible above an amount equal to 0.5% of your AGI, reducing the amount of deduction for charitable gifts somewhat.