Advanced Charitable Tax Planning: Legal Strategies for High-Value Donations

Tax planning for large cash or asset donations to a favorite charity is about more than ensuring you receive the maximum possible tax benefit. Failing to follow the IRS’s rules can lead to a reduction of the federal income tax deduction you planned to claim. In some cases, it may result in the loss of all tax benefits associated with the donation.

At first glance, the rules for making a deductible charitable contribution can appear straightforward. You write a check or hand over a valuable item to a charity, and in return, you receive a deduction for the value of the cash or item donated. However, the reality is often far more complicated. Each year, individuals forgo federal tax benefits on high-value donations because they failed to seek tax advice before donating.

Charitable giving is often more complicated for high-income individuals because they have more options for donating. For example, when considering tax purposes, is it better to donate to a local charity by writing a check or by donating an equivalent amount of stock? How about donating the expensive watch you received as a gift but never wear? What about the valuable painting you inherited from an aunt that’s been collecting dust in the basement? Donating any of these items would benefit the charity, but failure to do so properly will likely reduce, or even eliminate, any income tax deduction or tax savings you could claim.

This article explains several common tax-planning strategies for high-income individuals looking to benefit from supporting their favorite charities. If you still have questions, consider consulting a tax attorney for legal advice.

New Rules Apply for 2026

The passage of the One Big Beautiful Bill Act (OBBBA) in 2025 did more than just make the tax code changes in the 2017 Tax Cuts and Jobs Act permanent. It also made significant changes to the tax treatment of charitable contributions beginning in 2026.

For high-income taxpayers, the two most notable changes will be:

• The 0.5% of adjusted gross income (AGI) floor
• The 35% cap on the deduction that can be claimed for a contribution

The AGI limit of 0.5% may reduce incentives for high-income taxpayers to make smaller donations. For example, if a couple with an AGI of $500,000 who file jointly could not claim a charitable deduction until the total value of their donations topped $2,500.

Americans in the highest tax bracket are taxed at up to 37% on their ordinary income above certain levels. Traditionally, claiming a deduction for a charitable contribution meant a taxpayer could eliminate the tax due on the donated amount. Under the changes made by the OBBBA, taxpayers in the 37% bracket can claim only a 35% deduction, meaning they still pay 2% tax on the donated amount.

Under the old method, if you were in the highest tax bracket and donated $10,000 to a charity, you would claim a deduction for the entire amount. Since that income would have been taxed at 37%, that would have been a $3,700 tax deduction. However, under the OBBBA, the deduction would be capped at 35% of income, or $3,500 for a $10,000 donation.

Annual Donation Limits

In general, the deductions for cash donations are limited to 60% of an individual’s AGI for the tax year. Donations of appreciated assets are limited to 30% of AGI. However, the excess of contributions over the deductible can be carried forward for up to five years.

For example, let’s say you own a business and usually pay yourself $500,000 a year. Expecting to make that much in 2025, you were feeling generous and donated $100,000 to charity. Unfortunately, the company had a bad year, and your adjusted gross income for 2025 was only $80,000.  

The result is that you can only claim a $48,000 charitable deduction for 2025 (60% of $80,000). The unused $32,000 deduction amount can be carried forward to reduce your 2026 taxes.

Tax Strategies for Charitable Donations

If you are a high-income taxpayer looking to reduce your tax bill while contributing to a tax-exempt organization you support, the following methods are often used as tax-planning strategies.

Donor-Advised Funds

Donor-advised funds (DAFs) are growing in popularity as vehicles for making charitable donations while maintaining control over how the contributions are invested and distributed. A DAF is an account set up within a sponsoring organization that manages the fund on behalf of the donor.

Many financial services companies offer DAF management services, and some don’t charge either annual or set-up fees. Donating to a DAF, rather than directly to a charity, yields about the same tax advantages but gives you far more control over how the contribution is used and managed.

Amounts contributed to a DAF are often deductible as charitable contributions. Donations can also be in the form of property, such as stocks, real estate, and even art that will be sold. The donor can request that the fund make donations to qualified charitable organizations and control the size and timing of the fund’s grants. Donors can also control how the funds are invested, and any increase in the fund’s value will be tax-free.

One advantage of using a DAF rather than simply writing a check to an organization is that it allows you to support a small nonprofit that may not be set up to accept a single large gift. For example, you might have wanted to support the local Little League organization with a $50,000 donation. The organization’s annual budget is only $5,000, and it is run by a group of parent volunteers. Not only would a $50,000 donation be far more than the Little League needs for any given year, but it would also create administrative problems for the volunteers running it. Donating the $50,000 to a DAF would allow you to limit your annual donation to the amount the organization needs to operate each year, while the unused funds are invested for future use.

The tax treatment of DAF donations is usually the same as for amounts donated directly to a charity. This means the limits on the amount that can be donated and how non-cash contributions are valued still apply to donations made to a DAF.

Appreciated Stock

Stock that has appreciated (increased in value since it was purchased) can often be used to create a significant tax reduction for the donor. This is because donations of appreciated publicly traded stock provide a double tax benefit. Making an appreciated stock donation instead of selling the stock allows you to avoid the capital gains tax from the sale while claiming a deduction for the donated stock’s fair market value at the time it was donated.

The long-term capital gains tax is generally assessed on the amount the stock’s value increased while you owned it. Therefore, if you purchased 1,000 shares of stock in Company A for $10 a share ($10,000 in total) and sold them 10 years later for $50 a share ($50,000 in total), you would owe the capital gains tax on $40,000 ($50,000 – $10,000).

If you were in the highest tax bracket and would pay a capital gains tax rate of 20%, you would owe $8,000 in capital gains tax on the transaction. However, if you were to donate the appreciated stock directly to a charity, you could claim a $50,000 tax deduction while avoiding a $8,000 tax bill.

Required Minimum IRA Distributions

Investments in traditional IRAs are a great way to increase your retirement savings. However, at a certain age, you must begin taking required minimum distributions (RMDs) from your accounts, regardless of whether you need the money. As a result, many high-net-worth retirees who don’t need the RMDs are stuck paying taxes on the distributions, which could also push them into a higher tax bracket.

Fortunately, high-net-worth taxpayers can take advantage of qualified charitable distributions (QCDs). These distributions allow taxpayers older than 70.5 to transfer up to $111,000 (2026) annually to charity. Married couples may donate twice that amount. This transfer can satisfy part or all of your annual RMD requirement. Taxpayers may also make one-time QCD contributions of up to $55,000 to a charitable remainder trust or a charitable gift annuity.

Art or Collectibles

If you own art or collectibles that have increased significantly in value since you acquired them, donating them directly to charity can have tax benefits. However, the rules regarding these types of donation are often poorly understood. Donors often assume that if they simply hand the item over to the charity, the charity will sell it and they will receive a deduction for the sale price.

The IRS has made the rules for these types of donations far more complicated than that. The more valuable the donated item, the more complex the rules may be.

In addition, choosing the appropriate organization to receive the contribution is crucial to maximizing the tax benefit. A donation to an organization that intends to use it to further its charitable purpose creates a deduction for the full fair market value of the donated property. A contribution to an organization that will sell it and use the proceeds for its charitable purposes is often only deductible up to the amount you paid for it. If you have an artwork that has dramatically increased in value since you acquired it, donating it to a local museum that plans to display it will generate a far larger deduction than donating it to a local church that plans to sell it to fund its philanthropic activities.

To claim a deduction for non-cash donations, art, or collectibles with a valuation of more than $5,000, the donor must first obtain an appraisal from a qualified appraiser for their records, which they should expect to pay for. There are detailed requirements that the appraisal must meet to qualify for a deduction, so be sure to tell the appraiser that the appraisal is for a tax deduction. If the donated item is valued at more than $20,000, the appraisal must be filed along with the return. If the value of a single item is more than $50,000 and the IRS audits your return, the donation will be reviewed by an IRS advisory panel of independent subject matter experts.

A Tax Attorney Can Help

Claiming the itemized deduction for charitable donations can be complicated, especially when you are donating non-cash assets. If you are making a donation with an eye toward claiming a tax deduction, meeting with a tax lawyer beforehand can help maximize any available tax benefits you may receive. A tax attorney can walk you through the steps of making a donation and claiming a deduction that will stand up to IRS scrutiny.