Charitable Giving

Let's talk for a few minutes about charitable giving. The first question, of course, is: Should you bother? Should you bother giving anything to charity? And a lot of people get confused about this. They think this is some sort of a tax play that they're going to come out ahead by giving money away to charity. That's not the way deductions work, right?
It doesn't make sense to give $10,000 to charity in order to get a $4,000 tax break. Okay, yes, you don't have to pay taxes on that $10,000 because it's deductible, but you know you'd only pay $4,000 of taxes on that income anyway. So it costs you $10,000, $4,000 of benefit. You're not coming out ahead. You have to actually want to give to the charity. If you don't want to do that, then don't think this is some sort of savvy financial play that helps you to have more money or to leave more money to your heirs.

There are some possible exceptions with charitable trusts, but even then, most of the time, you're still coming out behind compared to if you just had never given anything to charity at all. There is some data to suggest, however, that that is not as true as you might think it is. There's data to suggest that givers actually become wealthier, and the reasoning is not clear. You know, whether it is divinity blessing you, or whether you become a more pleasant person to be around and people want to do more business with you, or they trust you more, or you become a better person and you're thus better at your job and better at managing your money.

Or maybe because you give away 10% of your money, you actually have to add up how much you're making, and you pay more attention to your finances. Nobody really understands why that is, but there's some data to suggest that givers actually do come out ahead. But it's not a direct benefit from the tax deductions of giving.

So, should you give to charity? Well, I think you should. I think you become a better person, and part of the reason why is you become less anxious about money. Giving money away, whether you're giving it to charity, whether you give it to someone that can use it more than you, whether you're giving it to family or friends or employees or whoever, sends a subtle message to your psyche that you have enough, and there's a lot of value in that.

When you have enough money, you quit worrying about your money. You shift out of a scarcity mindset, and I think you are happier. Plus, you bless the world most of the time when you're giving money away. You're giving it to somebody that can turn that money into a whole lot more happiness than you can, and I think that's valuable as well.

So while you're giving to charity, you might as well see if you can get a tax deduction for it. Whether that means you get a little bit more money than you would otherwise have, or whether that means you can give more to charity, that's a good thing. So I'm a big fan of actually paying attention to the tax benefits of giving to charity. So let's talk about those.

If you're giving cash, one of the coolest benefits is that $1,000 given to charity each year is completely deductible from your income, whether you itemize or not. If you're married, it's $2,000. People think of this as an above-the-line deduction. It's actually a below-the-line deduction, but you don't have to itemize to get it. It was made permanent with the One Big Beautiful Bill Act back in 2025.

But that's the way the tax code is right now. You can give away $1,000, or $2,000 if you're married, without itemizing your deductions, without filling out Schedule A, in cash that you give to charity, and not pay taxes on that money. So that's a beautiful thing.

If you want to give more than that, you're going to have to ask yourself: Is it worth itemizing? Right? Of course, whether you use Schedule A or not comes down to whether you have more itemized deductions than the standard deduction. And also, back in 2025, the standard deduction went up, and it's indexed to inflation, of course.

So it goes up each year, but it's a pretty substantial deduction. It's over $30,000 for a married couple. Now that includes, for most people, some mortgage interest. It includes charitable giving, and it includes $10,000, maybe more, in state and local taxes. So if all that adds up to more than $30,000-plus or so for a married couple, then it makes sense to itemize. If it doesn't, then you may just take the standard deduction.

So it's possible you give a bunch of money to charity. You give $10,000 or $15,000 to charity, and because all of your itemized deductions don't add up to more than the standard deduction, you might not be getting any tax benefit for that at all. So you actually have to do the numbers there.

Another thing that happened in the One Big Beautiful Bill Act back in 2025 was that there was a limitation for those in the highest tax bracket. Their itemized deductions are no longer deductible at 37%; they're only deductible at 35%. That includes charitable giving. So the charitable deduction is a little bit smaller for the highest earners than it used to be.

Another limitation is the first 0.5% of your adjusted gross income is not deductible. So if you make $300,000 a year, 0.5% of that is $1,500. The first $1,500 you give doesn't have any deduction at all. That's above and beyond that $1,000 to $2,000 deduction that I talked about earlier that you can do without itemizing. So it's a little bit more limited for the highest earners than it used to be. But it's still quite a substantial deduction. If you're going to give to charity anyway, you might as well get that.

Okay, now is that always the most tax-efficient way to give to charity? No, there are even more tax-efficient ways to give to charity. Once you're 70 1/2, for instance, you can do qualified charitable distributions. These take the place of required minimum distributions from your IRAs and your 401(k)s once you're of RMD age. But due to some quirks in how the laws were written, you actually get to QCD age before you get to RMD age. So you can do it for a couple of years before RMDs are even due.

But the beautiful thing about that is you don't have to take the money out of the IRA, pay taxes on it, and then give it to charity and calculate out the deduction and all that, and make sure you're still itemizing and those sorts of things. It just goes directly from your IRA to the charity. You never pay taxes on it. There's no additional tax break because you never paid taxes on it.

So it's money you earned 30 years ago. It grew for a long time in a tax-protected way, and then goes directly to charity without you ever paying taxes on it. So it's a pretty beautiful thing. If you're 70 1/2 or older and you have tax-deferred money, that is the best way for you to give to charity, hands down.

Until that time, another thing to consider for those of you who have enough savings that some of it is not inside a retirement account, meaning you're investing in a taxable, non-qualified brokerage account, and you have appreciated shares that you've owned for more than one year, you should donate those shares. You should basically never give cash to charity again. You should only donate appreciated shares that you've owned for more than one year.

The beautiful thing about doing that is it flushes those capital gains out of your portfolio. You can buy those same shares back the next day. There's no 30-day wash sale or anything like that, and neither you nor the charity pays those capital gains taxes. So it's a really great way to donate to charity.

You get the deduction, the size of the value on the day you contributed it, as long as you owned it more than a year, and neither you nor the charity pays any taxes on it. So that's pretty cool as well. You can do that via a donor-advised fund, or DAF, or you can do it directly to the charity. Either way is fine. It works the same way.

So, common mistakes that people make with charitable giving. Well, it's never a mistake, I suppose, unless you give to a terrible charity that's wasting your money or that's, you know, spending it on themselves or has too much administrative work. You should definitely evaluate the charities using something like Charity Navigator to make sure it's the best charity for the cause you're trying to support.

But other mistakes have to do with not understanding how the tax breaks work for the charitable deduction. For example, somebody might donate, you know, $12,000 a year to charity and not recognize that they don't have enough itemized deductions to actually take the itemized deduction, to actually use Schedule A. They're just taking the standard deduction anyway.

In that case, what people sometimes do is they bunch their deductions. They give their charitable giving for this year and for next year at the end of December, and then they can take all the deductions in this year. Then next year they take the standard deduction, and itemize the next year and standard deduction the year after that. This is kind of a bunching strategy, and that can make sense to do sometimes for some people.

You also have to actually keep some records. If you ever get audited, you have to actually prove that you gave it to charity. This is one of the great things about a donor-advised fund. If you just give your money in one lump sum, some appreciated shares once a year, that's all you have to keep track of.

Even if you dole that money out from the donor-advised fund to 30 different charities and on 60 different dates during the year, all you have to keep track of is that initial donation to the DAF.

For the most part, though, it's like anything else in personal finance. You want to pay attention to the complexity, make sure any complexity you're adding to your plan is actually providing more value than it's costing you, both money-wise and time- and hassle-wise.

Donating to charity is a wonderful thing. Make sure you understand how the tax deductions available for charitable giving work. There are many. Whether you're doing this directly to charity, whether you're using a donor-advised fund or a charitable foundation or a charitable trust, it's important to dive into the details.

But for the most part, anytime you're giving to charity, usually you can use it to lower your tax bill at the same time. Thank you very much. The government says they want you to support charities, and so they're going to subsidize that activity for you, which is wonderful for those of us who are charitable. And I encourage you to be.

The White Coat Investor Podcast is for your entertainment and information only and should not be considered financial, legal, tax, or investment advice. Investing involves risk, including the possible loss of principal. You should consult the appropriate professional for specific advice relating to your situation.