THE Investor’s Guide to Charitable Giving Basics

Charitable giving offers people a powerful way to support meaningful causes while optimizing their financial strategy. Understanding the right charitable giving tools can help you maximize your philanthropic goals and tax benefits. This guide walks you through the essential basics and vehicles that align generosity with smart financial planning.

A Brief History of American Charitable Giving

American philanthropy traces its roots to the 1600s, when early settlers created churches, schools, and community funds supported by private donations. Harvard College was named for John Harvard in 1638 after his charitable bequest, and this tradition of private support for public purposes became a defining feature of American life.

Modern philanthropy emerged after the Civil War, with major foundations established by industrialists like Carnegie and Rockefeller. In 1917, Congress added a federal income‑tax deduction for charitable gifts, which helped philanthropy become a significant part of the economy.

In 2024, Americans gave an estimated $592.50 billion to charities, with individuals contributing about $392.45 billion, or roughly two‑thirds of all donations. Bank of America reported that 81 percent of relatively affluent households made charitable contributions, averaging $33,219.

Americans rank among the most generous charitable givers in the world. Individual donations in the United States accounted for about 1.44 percent of Gross Domestic Product (GDP), nearly twice New Zealand’s 0.79 percent, which ranked second among the 24 countries analyzed; the average for all countries was roughly 0.7 percent of GDP.

Why Charitable Giving Belongs in Your Financial Plan

Thoughtful charitable giving can align your wealth with your values, engage your family in meaningful conversations about impact, and help manage taxes. Here are three principles:

1. First, charitable giving can build family purpose and connection. Many view philanthropy as a way to teach values, involve children in responsible decision‑making, and build a shared legacy.
2. Second, charitable strategies can play a role in estate and legacy planning. Nearly all donors include philanthropic provisions in their wills. When you integrate charitable bequests, trusts, or foundations into your estate plan, you can direct capital away from estate taxes and toward organizations and missions that reflect your values.
3. Third, charitable gifts can create current‑year tax benefits. When you itemize deductions, eligible donations to qualified charities can reduce taxable income. Larger gifts of appreciated assets, such as stock or business interests, can also help you avoid realizing capital gains while still supporting causes you care about.

When to Begin Charitable Giving

Most families start their charitable giving plan when their earnings growth moves them into a higher tax bracket. Common strategies at this life stage may include donor-advised funds and gifts of appreciated stock.

Others begin their charitable plan after a significant financial event, such as a business sale, stock option exercise, restricted stock vesting, or a substantial bonus. These one-time windfalls often create both the means and motivation to establish a charitable plan.

As net worth grows, families typically develop formal estate plans. This milestone often prompts them to establish charitable plans for their expanding assets, driven by estate tax considerations and a desire to shape their legacy through larger, more strategic thinking.

The Charitable Giving Tools You Need to Know About

The key charitable giving strategies that can maximize your philanthropic impact include cash donations, appreciated stock gifts, qualified charitable distributions, and donor-advised funds. Understanding these tools can help you match your generosity with thoughtful financial planning.

Direct giving

Gifts of cash are the simplest form of giving. They can be made online, by check, or through recurring transfers, and donors receive a receipt for tax purposes to support itemized deductions within IRS limits. This approach offers immediate satisfaction because the charity can use the funds right away. Beginning in 2026, donors who take the standard deduction may also deduct up to $1,000 (single) or $2,000 (married filing jointly) for qualifying cash gifts to public charities, even without itemizing.[WM1]

Gifts of appreciated stock or other long‑term investments may provide a double benefit. You may deduct the fair market value, subject to IRS rules, and avoid the embedded capital gains tax that would apply if you sold first.

Qualified charitable distributions

Qualified charitable distributions from traditional IRAs may offer an attractive option for investors age 70½ or older. Investors can transfer as much as $111,000 (indexed annually for inflation) from their IRA to a qualified charity. For married couples, this amount doubles to $222,000. The transferred amount is also excluded from your taxable income entirely.

This strategy can be valuable if you take the standard deduction rather than itemizing. The distribution does not increase your adjusted gross income, which may keep you in a lower tax bracket and avoid Medicare premium surcharges.

As for the process, the qualified charitable distribution must be made directly from your IRA custodian to the charity. You can’t take the distribution yourself and then donate it. The transaction must also be completed by December 31 of the tax year.

Donor-advised funds

A donor‑advised fund (DAF) is a charitable investment account in which your contribution grows tax-free and provides an immediate tax deduction.

DAFs are among the most popular charitable giving vehicles in the US. In 2023, donors made an estimated $54.77 billion in grants from DAFs to qualified charities.

Why are DAFs popular? For one, many DAFs have low or no investment minimums. In addition, when you donate to a qualified charity, you can lower your taxes in two main ways, depending on what you’re donating. If you donate cash, you can deduct up to 60 percent of your adjusted gross income (AGI) from your taxes. For example, if your AGI is $400,000 per year, you could deduct up to $240,000 in cash donations. This means you’d pay taxes on only $160,000 of your AGI instead of the full $400,000.

If you’ve owned stocks or investments for more than a year that have increased in value, you can donate them directly to charity instead of selling them first. When you do this, you can deduct up to 30 percent of your AGI, which is less than cash donations but comes with a bonus: you don’t pay capital gains tax when you sell.

The average donor‑advised fund account size was $141,120 in 2023, up from $129,206 in 2022.

Advanced Strategies for Charitable Giving

These tools offer enhanced control and strategic benefits for charitable giving:

Private foundations

Private foundations can be a good choice for families seeking maximum control over their philanthropy. You establish a separate legal entity, typically a nonprofit corporation, that exists to make grants to charitable causes.

Your family across multiple generations can serve on the board of directors. The foundation becomes a visible expression of your family values and can bear your family name.

The tax treatment differs from donor-advised funds. You can deduct up to 30 percent of your adjusted gross income for cash contributions and 20 percent for appreciated securities. Foundations must distribute at least 5 percent of their assets annually. They pay a 1.39 percent excise tax on net investment income and face more extensive reporting requirements than donor-advised funds.

Private foundations work best when you want to create a lasting family institution focused on specific causes. The administrative requirements and costs make them most suitable for individuals committing at least several million dollars to their philanthropic vision.

About 38 percent of donors use a family foundation as one of their giving channels. A foundation can employ staff, create grant programs, and operate its own initiatives, though it involves ongoing administrative, compliance, and reporting responsibilities.

Charitable remainder trusts

Charitable remainder trusts can provide you with a monthly income, with the remaining assets going to charity. This structure offers unique planning opportunities.

You transfer appreciated assets into the trust and receive a partial immediate tax deduction based on the calculated remainder value that will eventually go to charity. The trust sells the assets without incurring capital gains tax, and you or your beneficiaries receive annual income payments. At the end of the trust term, the remaining assets pass to your designated charities.

When you set up a charitable remainder trust, you get an immediate tax deduction even though the charity won’t receive the money until later. This deduction is typically 30 to 40 percent of the amount you put into the trust. For example, if you transfer $100,000, you might deduct $30,000 to $40,000 from your taxes right away.

This strategy can be valuable if you hold highly appreciated assets. You eliminate the capital gains tax, receive current income, and ultimately benefit charity. The technique also removes assets from your taxable estate.

The income you receive from a charitable remainder trust is taxed according to a four-tier system. Ordinary income is distributed first, followed by capital gains, then tax-exempt income, and finally return of principal. Each year, you receive a Schedule K-1 showing how your payments are categorized for tax purposes.

Charitable lead trusts

With a charitable lead trust, the trust makes payments to charity for a specific term, after which the remaining assets pass to your family or other beneficiaries.

This structure works well for estate planning purposes. You can transfer assets to the next generation at a reduced gift or estate tax cost because the value of the gift is discounted by the present value of the payments that go to charity.

The income tax treatment varies depending on how you structure the trust. A grantor charitable lead trust provides you with an immediate income tax deduction, though you pay tax on the trust income during its term. A non-grantor trust does not provide an immediate deduction but shields the trust income from taxation.

Many philanthropy-oriented families use more than one giving vehicle. Approximately 61 percent use two or more giving structures, often combining private or family foundations, donor‑advised funds, and specialized trusts for different purposes.

Frequently Asked Questions About Charitable Giving

How does the new tax act signed in 2025 affect charitable giving?

The tax act changes how valuable your charitable deductions will be starting in 2026, and the impact depends on how you file and how much you give. Non‑itemizers gain a modest new deduction for cash gifts[WM2] , but face a higher hurdle before any contributions count, and top‑bracket taxpayers will see slightly less benefit from each deductible dollar.

In addition, the new law lowers the cap on deductions that people in the highest bracket can take to 35 percent from 37 percent. As a result, you may want to make larger gifts in a calendar year than make smaller annual donations.

What happens to my donor-advised fund when I die?

When you set up a donor-advised fund, you choose successor advisors, or individuals who will take over the account when you die. These are often your children or other family members, and they inherit the ability to recommend which charities should receive grants from the fund. If you prefer, you can also give instructions to distribute whatever money is left in the fund to specific charities as soon as you die, rather than having someone else make those decisions.

How do I evaluate which charities to support?

Investors can look at three main areas: mission fit, financial health, and results. Tools such as nonprofit annual reports, Form 990 filings, and third‑party evaluators can help you review how organizations use resources and measure outcomes. Many potential donors also meet with leadership or visit programs in person to understand strategy and culture.

Should I involve my children in decisions about charitable planning?

Many families find that shared decision-making creates opportunities to teach values and financial responsibility. Consider inviting your children to help select causes, foundations, and donor‑advised funds.

A Recap: Charitable Giving Basics for Investors

How often should you review your charitable giving strategy? Most families benefit from a formal review at least once a year, or after any major life event.

A regular review lets you revisit goals, track the impact of your giving, adjust vehicles and funding levels, and coordinate philanthropy with tax, estate, and investment decisions so everything continues to work together.

As your wealth management partner, we look to guide, clarify, and empower you every step of the way. Ready to get started? We are here to help.

Schedule a complimentary year-end financial planning discussion to review potential strategies that fit your investment objectives.

This material is for informational use only and should not be considered investment advice.

Glassy Mountain Advisors, Inc. is an independent investment adviser registered under the Investment Advisers Act of 1940, as amended. Registration does not imply a certain level of skill or training. More information about Glassy Mountain Advisors including our investment strategies, fees and objectives can be found in our ADV Part 2 and Form CRS, which is available upon request.

[WM1]New rule from OBBB

[WM2]I stated it before with more information, open to suggestions of keeping my edits.