If you’re able to give back to charity, it can be an incredibly rewarding experience. And while charitable donations support the causes you care about, they can also benefit you in the form of a valuable tax break.
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High-income earners often include charitable giving as a key part of their tax strategy. And even if you’re not in a high-income bracket, you can still take advantage of many of these same tools. Here’s a look at how the wealthy incorporate giving into their tax strategy — and how you can, too.
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Charitable Donations Lower Taxable Income
High-income earners use charitable donations and tax-advantaged accounts to reduce their taxable income.
“High-income earners can realize the tax benefit of charitable giving by contributing to qualified charities, which directly reduces their taxable income,” said Nik Agharkar, owner and managing member of Crowne Point Tax.
They may also use charitable giving to avoid capital gains taxes.
“At higher income levels, gifting appreciated non-cash assets — such as publicly traded securities, private equity interests or real estate — offers dual tax benefits: a deduction for the fair market value of the gift and avoidance of embedded capital gains,” said Andrew Constantinides, CFP, investment advisor at Neil Jesani Wealth Management LLC.
“This is significantly more efficient than giving cash,” he said. “For clients facing concentrated equity positions or large liquidity events, charitable contributions can act as a release valve to manage both income and long-term capital gains exposure.”
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Taking Advantage of Donor-Advised Funds and Charitable Remainder Trusts
Many high-income earners utilize tools like donor-advised funds (DAFs) and charitable remainder trusts (CRTs), which come with unique tax advantages. DAFs allow earners to front-load charitable deductions in high-income years while maintaining flexibility over how and when grants are distributed.
“It decouples the tax event from the charitable disbursement — a useful feature for clients anticipating fluctuating income or strategic giving goals,” Constantinides said.
Charitable remainder trusts are more sophisticated tools often used in legacy planning.
“By donating highly appreciated assets into a CRT, a client can defer capital gains, receive an income stream and claim an immediate charitable deduction based on the remainder interest,” Constantinides said. “This structure can be particularly powerful when integrated into estate and retirement planning, allowing clients to convert low-yield or illiquid assets into income while ensuring a lasting philanthropic legacy.”
How You Can Incorporate Giving Into Your Tax Strategy
Even if you’re not a high-income earner, there are still steps you can take to incorporate philanthropy into your tax strategy — and achieve both tax savings and lasting impact.
“Individuals should bunch multiple years of donations into one year to surpass the standard deduction threshold,” said Rachel Richards, CPA and head of product at Gelt, a tax company focused on high-income earners. “They can also use employer matching, donate appreciated assets or set up recurring gifts for both impact and efficiency. It is very important to keep records and consult a tax advisor to ensure all giving is tax-optimized.”
The specific strategies that work for you can vary, but having a plan helps ensure you get the most out of your giving, for both your taxes and the causes you support.
“Regardless of income, giving can be structured intelligently,” Constantinides said. “Philanthropy should not only be generous, but also intentional and structured. When aligned with broader portfolio and estate goals, it becomes a source of tax efficiency and enduring impact.”
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Sources:
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Nik Agharkar, Crowne Point Tax
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Andrew Constantinides, Neil Jesani Wealth Management, LLC
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Rachel Richards, Gelt
This article originally appeared on GOBankingRates.com: How High-Income Earners Build Giving Into Their Tax Strategy — and How You Can, Too
