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Donating to charity used to be simple. Not anymore. I am reaching out for opinions on the most efficient way to donate in 2026. I have identified several ways to donate but can’t decide on the best approach.
The most direct way is to write a check which would be deductible; $2,000 for a married couple or $1,000 for a single taxpayer who takes the standard deduction. Itemizers can deduct up to 35% of AGI (I think).
The next approach is a Qualified Charitable Deduction (QCD) which allows those of us 70 1/2 or older to have our traditional IRA custodian send the donation directly to a charity. This has two advantages; it reduces your minimum distribution and is not taxable if done properly. The limit is $111,000.
Next is donating appreciated securities directly to a charity or to a Donor Advised Fund. The advantage here is that the appreciation is not taxed.
Please comment on my list. I hope I did not miss anything. But if I did, mention it so we can all benefit from the wisdom of the crowd.
I’ve started to use direct gifts of securities to my alma maters, and will continue to do so. I’ve taken to gifting blocks of shares that have the lowest basis while getting the market value as my deduction. This helps bring incremental tax efficiency to my portfolio and doesn’t require me to build any new “structure” for giving. Simple and effective. But the ratcheting down of the value of deductions for charitable contributions based on income can add a new calculation chore. For example, my state phases deductions out and I have seen that the Federal government will start to do that for 2026 for certain higher income taxpayers.
+1 on using a DAF. I use mine to growth my donated money. I limit gifts to 3% less admin and fund fees. The will and trust are set to move final assets to my DAF administrator, and they have instructions to continue my plan as an endowment (perpetual “DAF”). Donations to the DAF are also helping with tax efficiency – paying less taxes now (still doing roth conversions) and reducing RMDs (future taxes). My brokers advisors have been a big help establishing a plan and showing it’s many benefits.
Would you mind sharing who you use for your DAF? I’ve been interested in using a DAF but the fee’s have prevented me, maybe I’m looking at wrong providers though.
I am a gambler and in 2024 (and 2025) won a couple of jackpots that would have thrown me into a much higher tax bracket. My solution was to create a DAF via Schwab which allowed me to itemize deductions and claim my gambling losses against wins. With one simple move, I saved thousands in taxes and simplified my charitable giving. (Sadly, I do now have to pay IRMAA due to the increase in income). But it was a win/win/win situation.
I have always given 10% of my income to charitable causes. That has continued in retirement. It’s my plan to exhaust the DAF over the period of 3 or 4 years and then switch my RMDs (which start this year) to QCDs.
If you have a enough to itemize from any combination of high state taxes, mortgage interest, property tax, and charitable contributions (not counting the first 0.5% of AGI in your cash contributions), you may find that you have already exceeded your standard deduction amount and can itemize. From there, all your charitable cash donations are deductible on Schedule A after not counting the first 0.5% of your AGI.
Higher income taxpayers sometimes will bunch together their contributions and only make one bigger contribution every couple of years in order to push them into having enough to itemize.
FYI (and thanks to everyone for articles and comments) –
Beginning with the 2025 tax year, the IRS introduced Code Y in Box 7 of Form 1099-R to specifically identify a Qualified Charitable Distribution (QCD). This new code must be used alongside other codes—typically Y7 (normal distribution) or Y4 (death/inherited distribution)—to signify that a distribution was sent directly to a qualified charity.
Key Details for 1099-R QCD Reporting (2025-2026)
New Code: Code Y (Qualified charitable distribution).
Combination Codes:
Y7: Normal distribution that is a QCD (taxpayer is over 70.5)
Y4: Death/Inherited IRA distribution that is a QCD.
YK: QCD from a traditional IRA without a readily available fair market value.
Usage Timing: While effective for 2025, the use of Code Y is optional for that year, with full adoption expected by the 2026 reporting season.
Reporting Requirements: The full amount, including the QCD, is still reported in Box 1 (Gross distribution). The QCD amount is not technically tax-deductible, but it is excluded from taxable income (Box 2a).
Note: The QCD must be paid directly from the IRA custodian to the charity.
Always discuss tax strategy with your tax advisor before initiation.
We use a DAF. Been great in that we were able to bunch deductions into a single tax year; the deposit grows with the market allowing for greater giving. I’m not 70 yet so I’ll consider a QCD as well in the future.
I retired last July and wanted to sell some heavily appreciated tech stocks I had inherited, but I didn’t want the capital gains tax liability.
Because giving has always been a priority in our budget — 10% of gross income, even during lean years — a DAF through Fidelity was the perfect solution for us. It made donating stock very straightforward, and allowed us to stack deductions (charitable giving, property taxes bundled into one year, plus mortgage interest) so we could itemize our deductions in 2025. Another nice thing is that I get the tax benefit of the donation in the year I give it, but I don’t have disburse all of my donation in one year, but can spread it out over numerous years.
Donating to all sorts of charities has become incredibly simple — simpler than I ever imagined. With a few clicks, I can give to more than 20 of our favorite charities, all in one place. For one-off donation requests that come up from time to time, it’s easy to log into Fidelity and give immediately. My only regret is not having set one of these up earlier in life.
Once I reach 75, I’ll likely shift to QCDs. Until then, I’m quite satisfied with the DAF and will happily pay Fidelity for the convenience.
I contribute to my Donor Advised Fund to cancel out Roth conversion tax liability.
I’m old enough to do QCDs and prefer using them to a DAF. I don’t need the anonymity that I gather some DAFs may provide, nor do I want to pay an annual administrative fee to the DAF provider.
Being at a CCRC where a large medical deduction is available every year, I’m already itemizing deductions on my tax return anyway, so making donations via QCDs is the easiest and most tax-efficient for me.
I just read DavidS’s helpful article about DAF. We don’t have one of those, but after reading his article, I am going to research to see if it might be something we would want to do. We are not old enough to take QCD. So, we just write checks. Chris
Thanks, Howard, for raising an important topic.
For itemizers, the new tax rules are more nuanced than presented above. As I understand and beginning this year, itemizers can only deduct charitable donations above a “disallowed” floor, which is 0.5% of one’s AGI. Amounts below this threshhold will no longer be deductible. Also the deductible amount cannot exceed 60% of the AGI (up from 50% previously); donations above that limit may be carried over for up to five years.
The tax benefit for donations for those in the 37% tax bracket would be now as if the donors were in the 35% bracket.
The rules for QCDs are unchanged and not subject to the new limits, making them comparatively more tax efficient for older itemizers.
Howard, thanks for a very helpful post. I like QCDs if you are old enough to use them, because they also keep the income away from state taxes. The new $1k/2k deduction is nice, but I’m not sure if that will be above or below the line, (below the line won’t reduce state tax). Finally, if there is a way to preserve your standard deduction by using the other methods you mention, your tax liability will be lower.
Below the line.
We use the QCD for the bulk of giving. Then for smaller giving like local rescue squad or one off donations, we write a check and will use the deduction now.
Fidelity makes it very easy and efficient. Check is made out to the charity, but mailed to us so we can make sure it gets to the right person.
Thanks to your advice, Dick, and that of other regular contributors and commenters, I decided to use QCDs for the first time in 2025. I have checks provided by my financial company that draw from one account and I indicate on the check that it’s a charitable donation. Previous articles here have said that there’s a special form my tax preparer must submit so the IRS is aware.
My contact at Fidelity told me to make sure to take the QCD before the minimum distribution, then reduce the minimum distribution by the amount of the QCD. Fidelity does not screen the 501(c)3 status of the charity. She said I need to account for it on the tax form. I presume the tax software or preparer knows about this.
Thanks, Howard. I will make sure to mention this to my tax preparer.
No special form I am aware of, but you must indicate in your tax form how much of your RMD was a QCD as that is not on the 1099 R although I thought I read there was a change in reporting going forward.
Thanks, Dick.