With year end around the corner, gifting season is upon us. Many people will work to ensure they process a planned gift by the end of the calendar year to maximize any tax benefits. But despite the propensity to give this time of year, gifting techniques are useful to know all year long. In addition, understanding the impact of the 2025 tax law changes will further aid in crafting your charitable giving strategy.
What to gift: Cash vs Stock
Donating appreciated stock is a popular choice as the source of a charitable gift for the double tax savings. Not only do you get a deduction for the value of the stock on the day it is donated, but if you choose to give long-term shares (held more than a year) that have a significant gain, you can avoid paying capital gains tax that you otherwise would have if you liquidated the asset first to donate the proceeds. There is a difference in how much you can deduct on your tax return based on the type of donation. For example, with a cash donation you can deduct up to 60% of AGI whereas a stock donation allows for 30% of AGI, but you may carry forward any unused charitable deduction for future years. Always be sure your recipient charity is registered as a 501(c)(3) with the IRS so your gift is considered legitimate.
Note: You can also gift shares of appreciated stock to an individual, you just don’t get the tax deduction. However, this is still a way to give a gift without selling first and incurring capital gains.
How to gift: Direct Transfer, DAF, QCD
If you prefer to gift stock directly to a charitable organization, you can do so by arranging a transfer from your brokerage account to your charities’ brokerage account. Many organizations have their transfer instructions readily available as they are used to this common request.
Donor Advised Funds (DAFs), another popular gifting vehicle, will accept stock donations. Once inside the fund, shares are sold but with no tax impact to the donor. Funds are reinvested and can remain inside the DAF to grow for future grants to your charities. (for more information on donor advised funds, read my blog from 2018.)
Qualified Charitable Distributions (QCDs)are gaining popularity as the size of Required Minimum Distributions (RMDs) have grown quite large. If someone with a traditional IRA is charitably inclined, they can make donations directly from their IRA to a charity. Although withdrawals from an IRA are typically taxed as ordinary income, if the funds never touch the client’s personal account and go straight to the charity, the amount given is considered tax free. The donation also counts toward satisfying the required minimum distribution amount dictated by the IRS. Read more about RMDs and QCDs in Derek Amey’s blog.
Limits to Consider: Annual Gift Tax Exclusion vs Lifetime Exemption
We are frequently asked whether a gift will be taxable, and that is a loaded question. Taxed to whom? Taxed now, or later? So, here is a quick breakdown:
• Each year every person can give another person $19,000 without reporting the gift to the IRS. This is known as the annual gift tax exclusion, and the amount typically increases slightly each year. In addition, if the gift is given as cash, there are no tax implications to the donor or recipient. If the source of the gift is stock, any gain in the stock will be taxable to whoever sells it.
• In addition to the annual gift exclusion, there is also a lifetime exclusion amount. This refers to the amount of a person’s estate that is excluded from being subject to estate tax. If someone makes a gift that exceeds the annual gift allowance, the excess amount must be reported on a gift tax return. However, this additional amount is not taxable in the year it is given, rather, it is kept track of to be added back in the donor’s estate once they pass away. If the additional gifts given during their lifetime added to the estate value at time of death pushes them over the lifetime exclusion limit, then the estate will pay taxes on this amount.
Changes under the OBBB
The new addition of the charitable deduction for non-itemizers may increase participation in giving, with deductions up to $1,000 for individual filers and $2,000 for married couples in addition to the standard deduction, effective in 2026.
High-income donors face new hurdles that may reduce tax savings from charitable donations. A new AGI floor was put in place for those who itemize, where only charitable contributions exceeding 0.50% of an individual’s AGI will be deductible. Itemizers in the 37% bracket are also subject to a cap on all deductions of 35%. However, any unused charitable deduction can be carried forward.
Itemizing clients may consider bunching gifts as a strategy, where combining multiple years of donations into one tax year can help to exceed the new 0.5% AGI floor. This can be done by contributing to a donor-advised fund as the DAF keeps funds invested until the donor is ready to make a grant. For example, granting annually can still be done through the DAF even if the donor contributes once every few years.
In addition to the various changes related to charitable giving, the bill also made permanent the increased lifetime exemption amount. Effective January 2026 the exclusion amount is $15 million per individual, helping most people avoid federal estate taxes all together or at least significantly reducing the portion of the estate subject to taxes.
Remember that giving a gift to an individual, such as a family member or friend, does not qualify for a deduction on your tax return. In order to claim the tax deduction, the gift must be given to a qualifying 501(c)(3) charity. Regardless, planning any type of gift is still important. Achieving your philanthropic goals can also help ease your tax burden, and strategically giving can ensure it is done in an optimal way.
Kristina Mello, MBA serves as Senior Advisor and Director of Financial Planning at StrategicPoint Investment Advisors in Providence and East Greenwich. You can e-mail her at kmello@strategicpoint.com.
The information contained in this post is not intended as investment, tax or legal advice. StrategicPoint Investment Advisors assumes no responsibility for any action or inaction resulting from the contents herein. Kristina’s opinions and comments expressed on this site are her own and may not accurately reflect those of the firm or our parent company, Focus Financial Partners. Third-party content does not reflect the view of the firm and is not reviewed for completeness or accuracy. It is provided for ease of reference.
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