Giving is a powerful tool for tax, estate planning

According to the Lily Family School of Philanthropy, in 2023, individuals gave over $374 billion to various organizations and charities across the U.S. 

That is an incredible number. It's close to the same amount as the entire gross domestic product for the country of South Africa. The figure indicates how ingrained charitable giving is in our society. It's an important part of our economic structure and how our communities operate.

Charitable giving has many different benefits and beneficiaries. For individuals, it can be a tool for reducing taxes and protecting wealth, not to mention the feeling that comes with supporting causes that an individual holds dear. 

For communities and organizations, charitable giving provides the funds needed to accomplish important work for the benefit of the community. 

Within financial planning, charitable giving is one of the tools that can be used to help individuals or families reach their financial goals and protect their wealth. If done properly, it can have a profound impact on a family’s wealth.

From a tax planning perspective, charitable contributions can have a dramatic impact from year to year. Charitable contributions can lower your taxable income in a year, thus lowering your tax burden for that year. This can be especially beneficial in years where your income is higher than it has been in the past or you decide to realize capital gains within your portfolio. 

One thing to note, the standard deduction in 2025 for a couple filing jointly is $30,000. So any contributions—combined with other itemized deductions—would need to be beyond that number to have an impact on your taxable income.

An example of how this may look: We had a client who recently sold a large number of their shares from a very concentrated position to gift to their children as part of their overall estate planning strategy. In working with their certified public accountant, we decided that it would be most beneficial from a tax perspective to take a percentage of the capital gains and put it in a charitable trust, which this couple already had set up. 

By doing this, we were able to offset a good amount of the capital gains they had for that year while still accomplishing the gifting. They were also able to donate those funds to the organization or charity of their choice. It was a win-win and a great example of how charitable contributions can be an effective tool. 

Within estate planning, charitable contributions can have an incredible impact on the wealth that is passed to future generations. 

The way charitable contributions typically fit into an estate plan is by providing a path for that individual or couple to reduce their estate, effectively reducing estate taxes, all while benefiting the organizations they care about most. 

There are many different strategies that can be employed to accomplish this, but the goal for each strategy is to create a way to transfer your wealth to the next generation while paying the least amount of taxes possible. We recommend working with an estate attorney on the strategy that works best for you and your situation. 

Estate taxes on the federal level are not an issue for most people. The current federal lifetime gift tax exemption is $13.99 million per person, meaning you can pass the first $13.99 million—or $27.98 million for couples—to your heirs with no federal estate tax. 

Here in Washington state, however, estate taxes start to have an impact on estates over $2.139 million. This could include everything that you would pass to your heirs, such as investments, home, life insurance proceeds, etc. 

The first step in determining whether you should incorporate charitable contributions into your financial situation is working with a financial adviser to create a financial plan. We call this your road map. Once you have a good understanding of where you want to go, you can start to determine the steps you need to take to get there. Your financial plan becomes your framework for making financial related decisions.

In our experience, having a road map provides clarity on which strategies should be taken, and which should be avoided. 

There are a few things to avoid when it comes to charitable contributions. These may seem common sense, but we have seen people make these mistakes before. 

The first thing to avoid is donating without a plan. That can be a simple plan, such as a plan to contribute monthly to specific organizations or causes you care about. Or it can be more complex and driven from your financial plan—again, the financial plan is the key.

The second mistake is ignoring the tax benefits of charitable contributions. We strongly recommend working with a CPA to make sure you are taking advantage of all tax benefits for any donations you may make. 

The third mistake is donating only for the tax benefits. This one comes from our philosophy of wanting to be intentionally generous. There are so many great organizations out there. If you are considering donating, make sure it is something you care about and feel good about supporting. 

Charitable contributions can play a very important role in your financial situation. If you don't have a financial plan, we would recommend starting there. That will give you clarity to determine whether charitable contributions are the right strategy for you. At the end of the day, we hope you are generous with the wealth you have and use it to bless others.  

John Graham is a Spokane-based financial adviser with Stifel, Nicolaus & Co. Inc., who can be contacted at 509.570.5722.