Tax-Efficient Charitable Gifting

Inflation has changed more than the cost of groceries, travel, housing, and everyday expenses. As prices rise over time, investors may increasingly look for opportunities to make their financial decisions more efficient — particularly when it comes to taxes, investments, estate planning, and charitable giving.

As summer comes to an end and the calendar begins its quick march toward the holidays, now can be a useful time to start thinking about year-end financial planning. For individuals and families who regularly support charitable organizations, that review should include not only how much you plan to give, but how you give it.

Why Appreciated Stock May Be Better Than Cash for Charitable Giving

Writing a check or making an online cash contribution may be the simplest way to support a favorite nonprofit, but it isn't necessarily the most tax-efficient.

Investors who own stocks or other investments that have appreciated significantly may be able to donate those assets directly to a qualified charitable organization rather than selling the investment and donating the resulting cash.

Why does that matter?

Selling an appreciated investment generally creates a taxable capital gain. According to Charles Schwab, long-term capital gains can be subject to federal rates as high as 20%, with some higher-income investors also potentially subject to the 3.8% net investment income tax. By donating qualifying appreciated assets directly instead, an investor may avoid recognizing that capital gain while potentially qualifying for a charitable deduction.

That can create an opportunity for more of the investment's value to ultimately benefit the organization you want to support.

An Important Requirement: How Long You've Owned the Investment

The holding period matters.

For the favorable treatment associated with donating appreciated securities, Schwab notes that the asset generally needs to have been held for more than one year. An eligible donor may then be able to deduct the investment's fair market value, subject to applicable IRS rules and limitations.

There are also limits to consider. Schwab notes that deductions for qualifying noncash charitable donations are generally limited to 30% of adjusted gross income (AGI), with unused eligible deductions potentially carried forward for up to five additional years.

This is one reason charitable giving shouldn't necessarily be treated as an isolated December transaction. It can instead become part of a broader tax and financial planning conversation.

Charitable Giving Rules Changed for 2026

There are also new tax considerations to understand this year.

Beginning in 2026, taxpayers who itemize deductions generally face a new charitable deduction floor equal to 0.5% of adjusted gross income. In other words, only charitable contributions exceeding that threshold are eligible for an itemized charitable deduction. For someone with $500,000 of AGI, for example, the first $2,500 of charitable giving would fall below the deduction threshold.

Changes affecting taxpayers in the highest federal income-tax bracket may further influence the value of itemized deductions. These rules make coordinating charitable giving with a CPA, financial advisor, and, when appropriate, estate attorney particularly important.

The tax deduction shouldn't be the reason to give. But if you're already planning to support an organization, understanding the rules may help you do so more efficiently.

Donor-Advised Funds Can Add Flexibility

One challenge with year-end charitable planning is that you may know how much you'd like to give before deciding exactly where you'd like the money to go.

A donor-advised fund (DAF) can potentially help bridge that gap.

Investors can contribute qualifying appreciated investments to a donor-advised fund and potentially receive a charitable deduction for the contribution in the current tax year, subject to applicable limitations. The donor can then recommend grants from the fund to eligible charities over time rather than having to select every recipient immediately.

For someone experiencing an unusually high-income year, holding a concentrated appreciated investment, or wanting to establish a more organized approach to philanthropy, a DAF may be worth discussing as part of a broader financial plan.

More complex charitable and estate-planning strategies can include charitable remainder trusts and private foundations, although their costs, requirements, and suitability can be considerably different.

Start With What You Actually Care About

Tax efficiency is only half of the charitable-giving conversation.

When onboarding clients at Elswick Investments, one of the questions I ask is which nonprofits they are connected to — whether through regular contributions, volunteering, or simply a cause that is personally meaningful.

I've noticed an interesting disconnect.

People frequently know what they care about, but they don't always know which organizations are doing meaningful work in that area beyond the large, nationally recognized charities.

Someone may care deeply about animal welfare, arts education, environmental conservation, domestic violence prevention, food insecurity, children's services, or another specific issue. Translating that interest into a thoughtful charitable strategy can require another layer of research.

That's something Elswick Investments plans to help address. In 2027, we intend to create a client resource designed to help investors become better acquainted with charities and nonprofits working across a variety of causes.

Charitable Giving as Part of Your Financial Plan

A thoughtful charitable strategy can accomplish more than making a year-end donation.

Depending on your circumstances, charitable giving can intersect with investment management, concentrated stock positions, capital gains planning, income taxes, estate planning, and multigenerational wealth transfer.

It can also create an opportunity to make your portfolio more reflective of your priorities.

If you already expect to make charitable contributions this year, consider reviewing your portfolio before automatically reaching for your checkbook. An appreciated investment may offer another way to support the organizations you care about while potentially improving the tax efficiency of your overall financial strategy.

The goal isn't simply to give more or save more in taxes. It's to be intentional about how the different pieces of your financial life work together.

At Elswick Investments, charitable planning can be incorporated into the broader wealth-management conversation alongside investments, taxes, estate considerations, and long-term goals. If you're wondering whether gifting appreciated stock or another charitable strategy could make sense for your circumstances, we're here to help you explore the options with your broader financial picture in mind.

This material is provided for general informational and educational purposes and should not be considered individualized tax, legal, or investment advice. Tax rules and their application depend on individual circumstances and may change. Consult the appropriate tax and legal professionals regarding your specific situation.