By: Ellan Howley, CFP® 10 December 2020
Note: This blog was originally posted in 2019. It has been updated with 2020 tax changes.


With December being the most charitable month of the year, we thought it timely to dive into the topic of charitable giving before the holidays sweep us all away.

It’s Science

Research has shown that the “warm and fuzzies” of donating has scientific support, and those who choose to donate to charity enjoy activated pleasure in the brain. Here are some key giving strategies to consider before the year ends so you can get your dose of brain goodness!

Stock > Cash

Keep your pen off that checkbook! While giving cash may seem like the best way to give to charity, giving appreciated stock positions may be in your best interest. If you gift $100 of cash to a charity, that full $100 is tax deductible. Seems great, right? Not so fast!

Say you decide to give that $100 to charity but instead of cash you gift one share, valued at $100, of your stock position in a Total Market Index Fund. Assume you originally bought the fund for $80/share. If you were to sell that one share today, you’d have to pay capital gains tax on the $20 of gain. Since you heeded your advisor’s advice and chose to donate a share of the stock fund, you not only get the $100 tax deduction, but you won’t pay any capital gains tax on the growth. And neither will the charity!

Bottom line, before writing that check or giving cash, consider donating your appreciated stock to avoid paying capital gains tax. Now, you might be saying to yourself, donating stock sounds great in theory, but it doesn’t seem like as easy of a process as donating cash. Thankfully, there’s a solution for that!

Cue the Donor-Advised Fund…

A donor-advised fund is the middleman of charitable donations. It is an account you can use to simplify the process of donating stock to charity. Here’s how it works:

  • Step 1: Open the donor-advised fund account (we got you covered on this)
  • Step 2: Create cool name for the fund like “Activated Pleasure” (or you can be simple and call it “The <insert last name> Family Fund”)
  • Step 3: Transfer appreciated stock to the account (See above why this is dope and dopamine-inducing. Again, we got you covered on the transfer)
  • Step 4: Receive tax deduction for the year you made the contribution (i.e. If you make a contribution in December 2020, you get a deduction on your 2020 tax return!). This works even if the funds haven’t been distributed to a specific charity yet!
  • Step 5: Make distributions to charity from the account when you want with the click of a button (You can make distributions to charities at any time in the future. Wait a month, wait a year, it doesn’t matter!)

Try “Clumping” - The Newest Fad in Giving

Donor-advised funds have come in handy since the 2017 tax law changes. The tax changes both increased the standard deduction and reduced the amount of itemized deductions allowed. This means that an individual might need to increase their charitable giving in order to be able to itemize their deductions.

Here's the math*:

Sally and George are a married couple and want to know how much more they would have to gift to charity in order to itemize their deductions for the year. They currently donate $5,000/yr.

2020 Standard deduction (married under age 65) $24,800

Itemized Deductions:

State & Real Estate Taxes (max deduction)



Mortgage Interest $5,000
Gifts to Charity $5,000
Total $20,000


This example shows that in order to itemize deductions over taking the standard deduction, this person would need to contribute at least an additional $4,800 to charity. This would almost double the annual gifting they are currently doing!

An alternative plan could be to utilize a donor-advised fund and make multiple years’ worth of contributions (or “clump” the contributions). Sally and George could contribute three years’ worth of gifting to a donor-advised fund all in the same year. Then, over the next three years they could fulfill their annual giving. Per our example, they would contribute $15,000 in one year, and then use that to give $5,000 per year for the next three years to their favorite charities.

In the year Sally and George make the contribution to the donor-advised fund, they would take $15,000 of charitable deductions, and thus be able to itemize their deductions. Then, in the subsequent two years, they would take the standard deduction while making gifts from their donor-advised fund. After the three years are up, the whole process would start over. This “clumping” can help simplify the donation process while taking advantage of itemizing deductions and increasing the “warm and fuzzies.”

QCDs: For the Older and Wiser Crowd

For those of you wise people out there, besides “clumping,” there is another strategy to give to charity, called a qualified charitable distribution (QCD)**.

Once you are age 72 (or 70 ½ if you reached 70 ½ before January 1, 2020), the law states that you need to take a required minimum distribution (RMD) from your pre-tax retirement accounts each year for the rest of your life. You’ve been deferring the tax so far, but now Uncle Sam wants his share!

Typically, each year after age 72 you would take the RMD, pay tax on the distribution, and keep the remainder to spend or do with as you please. Instead of fulfilling the RMD this way, you could make a QCD. Meaning, you could donate part or all of your RMD to charity directly from your retirement account and thereby avoid paying tax on the distribution (Why yes, I’ll take a side of tax savings with that happiness boost!) Let’s look at an example.

Dorothy wants to make a gift of $1,000 to her church. She is age 73. Each year she is required to take about $12,000 from her IRA to fulfill her RMD. She has 30% withheld for taxes on her RMD. She has 2 options for donating to her church:

  1. Take her RMD of $12,000. Withhold 30% for Net distribution is $8,400. She then makes her donation of $1,000 to church and keeps $7,400 to spend.
  2. Dorothy donates $1,000 directly from her IRA to her This leaves $11,000 to take to fulfill her RMD. She withholds 30% of $11,000 for taxes. This leaves $7,700 for her to spend.

By making the QCD, Dorothy would save about $300!

One thing to note. You are able to take advantage of a QCD once you reach age 70 ½, even if your RMD isn’t required until age 72!


As you can see, there are many strategies and nuances to donating to charity. If you have any questions about how to make a donation, please let us know! We’re here to help navigate you through the weeds and determine the best strategy for your situation to fulfill your charitable goals. We want to help keep your charitable giving a positive, rewarding experience!

*There is a $300 "above the line" deduction allowed in 2020 for charitable contributions, enacted through the CARES Act. The donation has to be cash and you are not allowed to itemize to take advantage of this deduction. You cannot donate it to a donor-advised fund, and it has to be donated to a qualified charity. Currently, MN has not conformed to this.

**Check with your advisor before completing a QCD if you are still contributing to your IRA.


Author Image

Ellan Howley, CFP®

Financial Planning Operations Specialist

For information regarding our blog disclosures, click here.

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