Tips to Maximize Tax Benefits of Charitable Giving

Lindsey AndersonBy Lindsey Anderson, CPA
Manager, Tax Services Group

Year-end is an ideal time to give to charity, both for the spirit of the holiday season and the ability to include those deductions on this year’s return. Here are some tips on how to maximize the tax benefits of your charitable donations:

Donate Highly Appreciated Stock Instead of Contributing Cash

When it comes to charitable giving, the IRS allows you to take a tax deduction for the fair market value of donated stock held for more than one year, even though you may have paid substantially less for the stock originally. By donating the stock directly to the charity, you will avoid capital gain tax that would have been owed if you had sold the stock directly.

Depending on your tax bracket, this strategy could result in up to an extra 23.8% tax savings on the gain. The charity will usually sell the stock as soon as they receive it to use the proceeds for their mission purposes. You save money by avoiding taxes on the gain and by receiving a charitable deduction for the fair market value of the donated stock.

When selecting this strategy, it is important to choose investments with significant unrealized gains – the higher the better.

Fund a Donor Advised Fund

Long gone are the days when you had to be part of the ultra-wealthy in order to create a charitable legacy through funding and running a Private Family Foundation. Maintaining a Private Foundation does still have its benefits — such as retaining control and involving family members in charitable giving — but it can be a costly endeavor.

A more cost-efficient strategy has arrived in the charitable world known as a donor-advised fund. These individual accounts are maintained by a qualified Charitable Foundation set up through your investment advisor. (Think Schwab Foundation or Fidelity Charitable Fund.)

Taxpayers can receive the same tax benefits of receiving an up-front deduction when funding their donor-advised account, but this method allows the money to stay in the account until ready to advise on its disbursement to the applicable charities. Donor-advised funds are an excellent strategy for tax savings in a year in which you enjoy significant taxable income, such as proceeds from the sale of a business.

Time Major Donations for When Income Is High

Most charitable contributions may be deducted up to 50% of adjusted gross income. Contributions to certain private foundations, veterans’ organizations, fraternal societies and cemetery organizations are limited to 30% of adjusted gross income.  With that being said, timing charitable contributions when income is high will help save tax dollars. If you were to sell your business for a large gain, time your charitable contribution to occur in the same tax year as the gain from sale to maximize your contribution.

Consider Sending Your RMD Directly To Charity

A qualified charitable distribution (QCD) is a direct transfer of funds from your IRA custodian payable to a qualified charity. If you are age 70½ or older, you can transfer up to $100,000 to charity tax-free each year, even if that is more than your required minimum distribution (RMD).

By sending funds directly to a qualified charity of your choice, you do not have to include the withdrawal in taxable income for the year. This is especially advantageous for those who must take their RMD but do not itemize their deductions, or have their itemized deductions phased out.

School Scholarship Granting Organizations

The state of Indiana allows for a very generous credit for donations made to a Qualified Scholarship Granting Organizations (SGOs). Qualified SGOs receive funding for scholarships from private, charitable donations. Each year, the Indiana Department of Revenue indicates the total amount of credits to be awarded. For fiscal year ending June 30, 2018, there are $12,500,000 in credits to be awarded by the Department of Education.

You should check on the remaining balance of available credits prior to donating to an SGO fund to ensure there are enough available for your donation. By donating to a SGO, you receive a charitable contribution for your donation on your Federal return as an itemized deduction. In addition, you receive 50% of your donation as an Indiana state tax credit to offset your state tax liability.

Indiana College Credit

Plan on supporting your favorite Indiana college or university? There’s also a credit for that! Indiana allows a credit of 50% of any donation made to an Indiana college or university, up to $200 per tax year. Tuition paid to a college or university is not a contribution and does not qualify for this credit.

Indiana Neighborhood Assistance Program

Indiana offers Neighborhood Assistance Program (NAP) tax credits annually for distribution by non-profit organizations. Organizations that focus on affordable housing, counseling, child-care, educational and emergency assistance, job training, medical care, recreational care, downtown rehabilitation and neighborhood commercial revitalization are typically granted NAP tax credits.

These credits allows the organization to incentive donations to their organization. By donating to an organization with an eligible NAP tax credits program, you receive a charitable contribution for your donation on your federal return as an itemized deduction in addition to an Indiana state tax credit in the amount of 50% of your donation amount.


A couple of warnings to keep in mind for all of these strategies. First, always make sure that you donate to qualified 501(c)(3) organizations; otherwise, your contribution will not be allowable as a tax deduction. Furthermore, the IRS has some stringent documentation rules that must be met depending on the type and value of your contribution.

Many taxpayers have lost out on large tax deductions because they didn’t obtain the proper documentation on the front end or realize that the charity was not actually a qualified organization with the IRS.

If you need assistance with your charitable giving plans, please call Lindsey Anderson in our Tax Services department at (317) 608-6699 or email

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