Are You Getting Any Tax Benefit From Your Charitable Giving? Three Strategies That Actually Work for Retirees

A Generous Couple, a Surprising Discovery

Carol and Dave have given $15,000 a year to their church and a local food bank for the better part of a decade. They're generous people, and they assumed — reasonably — that their giving was reducing their tax bill every year. So when their accountant mentioned during a routine review that they hadn't actually itemized their deductions in six years, they were stunned.

“What will I owe in taxes when I retire… and how can I help cut that number down?”

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Every dollar they'd given — more than $90,000 — had produced zero tax benefit in their case. Not because they did anything wrong, but because nobody had shown them how to structure their giving to work within today's tax code.

If you're a retiree who gives regularly to a church, a community organization, or any charity, there's a meaningful chance you're in the same position Carol and Dave were. The good news is that three well-established strategies can change that — and you don't have to give a penny more to benefit from them.

Why Most Retirees Get No Tax Benefit From Their Charitable Giving

The Standard Deduction Trap

Here's the core problem. A charitable donation only reduces your taxes if you itemize your deductions — and most retirees don't, because the standard deduction is simply too high for itemizing to make sense.

For the 2026 tax year, the base standard deduction for a married couple filing jointly is $32,200. If both spouses are 65 or older, each qualifies for an additional $1,650, bringing the total to $35,500. On top of that, the One Big Beautiful Bill Act (OBBBA) introduced a new temporary enhanced senior deduction of up to $6,000 per eligible person age 65 or older — up to $12,000 for a married couple — for tax years 2025 through 2028, though this bonus phases out for couples with modified adjusted gross income above $150,000. For eligible couples, the effective standard deduction can climb even higher, according to IRS Publication 501.

Now consider a retired couple with $6,000 in state and local taxes, $5,000 in mortgage interest, and $15,000 in annual charitable giving. Their total potential itemized deductions come to $26,000 — well below even the base $32,200 threshold. They're better off taking the standard deduction, which means their charitable giving produces no incremental tax benefit at all.

This isn't a mistake. It's simply the math of the current tax code. And it affects a large share of retirees — particularly in Arizona, where property taxes tend to be lower than in many other states, making it even harder to reach the itemization threshold.

So what can you do about it? Three strategies stand out.

Strategy One: Qualified Charitable Distributions (QCDs)

How a QCD Works — and Why It May Beat a Regular Cash Gift

A Qualified Charitable Distribution is a direct transfer of funds from your IRA to a qualifying charity. The key word is direct — the money goes straight from the IRA custodian to the charity and never passes through your bank account.

Why does that matter? Because a QCD is generally excluded from your taxable income. Unlike a regular charitable gift — which only helps if you itemize — a QCD reduces your adjusted gross income (AGI) regardless of whether you take the standard deduction. As Morningstar explains, "a QCD provides an automatic tax benefit and does not require itemization."

Consider the difference with a simple side-by-side:

• Scenario A: A retiree takes a $12,000 distribution from her IRA, pays income tax on it, then writes a $12,000 check to her church. If she doesn't itemize, she gets no deduction for the gift — but she still owes tax on the $12,000 distribution.
• Scenario B: The same retiree directs $12,000 from her IRA directly to the church as a QCD. The $12,000 generally does not appear as income on her tax return. She can still claim the full standard deduction on top of that.

In Scenario B, she may reduce her tax bill by the full amount of tax she would have owed on that $12,000 distribution — and she can still claim the full standard deduction. That's a meaningful difference.

QCDs are available starting at age 70½, and the annual limit is $111,000 per person for 2026. Once you reach age 73 and Required Minimum Distributions begin, QCDs can count toward satisfying your RMD — so you're fulfilling a tax obligation while supporting the causes you care about.

The Medicare and Social Security Connection

Lower AGI doesn't just mean a lower tax bill. It can have ripple effects across your entire financial picture.

Medicare IRMAA surcharges — the income-related monthly adjustment amounts that increase your Part B and Part D premiums — kick in when your modified adjusted gross income exceeds $109,000 for individuals or $218,000 for joint filers (2026 thresholds, per CMS). A QCD that lowers your AGI may help you stay below one of these thresholds, potentially saving you hundreds or even thousands of dollars in annual Medicare premiums.

Similarly, the portion of your Social Security benefits subject to federal income tax depends on a formula tied to your combined income. If your combined income exceeds $32,000 for married filing jointly, up to 50% of your Social Security may be taxable; above $44,000, up to 85% may be taxable (see IRS Publication 915 for details). Lower AGI from a QCD may reduce the taxable share of your Social Security. One important note for Arizona residents: Arizona does not tax Social Security benefits at the state level, so this particular benefit applies at the federal level only.

Strategy Two: Donor-Advised Funds (DAFs)

What a Donor-Advised Fund Is and How It Works

A Donor-Advised Fund is a charitable giving account administered by a sponsoring organization. You contribute to the fund, receive a tax deduction in the year of the contribution, and then recommend grants from the fund to your chosen charities over time — on whatever schedule you prefer.

Think of it as a charitable savings account: you fund it when it's most tax-advantageous to do so, and you distribute from it when your charities need the money.

Contributing Appreciated Stock to Avoid Capital Gains Tax

One of the most powerful features of a DAF is the ability to contribute appreciated stock directly — without selling it first.

Here's a hypothetical illustration. Suppose you hold stock that you purchased for $5,000 and that is now worth $8,000. If you sold the stock and donated the $8,000 in cash, you'd owe long-term capital gains tax on the $3,000 gain. At a 15% long-term capital gains rate, that's approximately $450 in tax — more if your income puts you in the 20% bracket.

But if you contribute the stock directly to a DAF, no capital gains tax is generally owed on the embedded gain, and you may be eligible for a deduction based on the full $8,000 fair market value. Two potential benefits from one transaction.

One important limit to be aware of: contributions of long-term appreciated property to a DAF are generally deductible up to 30% of your adjusted gross income, with any excess carried forward for up to five years. Cash contributions to a DAF are subject to a higher limit — 60% of AGI.

It's also worth noting that Arizona's flat state income tax rate of 2.5% means the federal tax benefit of these strategies is the primary driver for Arizona retirees — the state-level marginal rate is already low, so the real opportunity is at the federal level.

Simplified Recordkeeping and Flexible Giving

Beyond the tax benefits, a DAF simplifies the logistics of charitable giving. Rather than tracking receipts from a dozen different organizations at tax time, you receive a single year-end statement showing your contributions into the fund and distributions out to charities.

And your charities experience no disruption. You can set up recurring monthly or quarterly distributions from the DAF to each organization, so they receive gifts at the same cadence as if you were giving directly. The timing of your tax benefit and the timing of your charitable support don't have to match.

Strategy Three: Charitable Bunching

How Bunching Works: Concentrating Two Years of Giving Into One

Charitable bunching is the practice of concentrating two or more years of planned charitable giving into a single tax year so that your itemized deductions exceed the standard deduction threshold — producing a meaningful tax benefit that would otherwise be lost.

Let's walk through an illustrative example. Consider a married couple filing jointly (both under 65) for the 2026 tax year, where the base standard deduction is $32,200 (per IRS Rev. Proc. 2025-32). They have:

• $6,000 in state and local taxes
• $5,000 in mortgage interest
• $20,000 in annual charitable giving

Their total itemized deductions come to $31,000 — just below the $32,200 standard deduction. In a normal year, they'd take the standard deduction, and their charitable giving would produce no additional tax benefit.

Now suppose in November or December, they pre-fund the following year's $20,000 in planned giving. Their itemized deductions for the bunching year jump to $51,000. In the following year, they take the standard deduction of $32,200 (since they've already made their charitable gifts).

Across the two-year period, this approach may produce approximately $18,800 in additional deductions compared to taking the standard deduction both years. At a 22% marginal tax rate, the potential tax savings in the bunching year could be approximately $4,136. To be clear: these are illustrative figures — your actual results will depend on your specific income, deductions, and tax bracket.

For retirees who are over 65 and eligible for the enhanced senior standard deduction under the OBBBA, the itemization threshold is even higher, which can make bunching even more valuable — the gap between your normal-year deductions and the standard deduction is wider, meaning you need bunching to bridge it.

One caveat for 2026 planning: the OBBBA also introduced a new floor on itemized charitable deductions equal to 0.5% of AGI, which slightly reduces the value of the deduction for itemizers. This is a relatively small adjustment for most retirees, but it's worth noting when running the numbers.

Using a Donor-Advised Fund to Bunch Without Disrupting Your Charities

The natural question is: if you front-load two years of giving into one year, does your church or food bank get nothing the following year?

Not if you use a DAF. You contribute the full two-year amount to the DAF in the bunching year — claiming the deduction — and then set up the DAF to distribute to your charities on the same monthly or quarterly schedule they're accustomed to. The charities see no change in timing or amount. Your tax strategy and their cash flow are completely independent.

Stacking Bunching With Appreciated Stock

Here's where these strategies start to compound. If you fund your DAF in the bunching year with appreciated stock instead of cash, you may capture two distinct tax advantages from a single transaction:

1. No capital gains tax is generally owed on the stock's embedded gain
2. A larger itemized deduction in the bunching year, based on the stock's full fair market value

This combination — bunching through a DAF funded with appreciated stock — is one of the most tax-efficient ways for retirees with taxable brokerage accounts to support the causes they care about.

Common Mistakes to Avoid

Before deciding which strategy fits your situation, it's worth flagging a few pitfalls we see regularly:

• Assuming your charitable gifts are reducing your taxes without checking whether you actually itemize. This is exactly what happened to Carol and Dave — and it's more common than most people realize.
• Selling appreciated stock and donating the cash instead of contributing the stock directly to a DAF. Selling first may trigger a capital gains tax bill that could have been avoided entirely.
• Not coordinating QCDs with RMD requirements after age 73. If you're already giving to charity from other funds while taking taxable RMDs, you may be missing an opportunity to satisfy both obligations with one transaction.

How to Decide Which Strategy Is Right for You

Every retiree's situation is different, but here's a practical way to think about which of these strategies might matter most for you:

• If you are 70½ or older with IRA assets and give regularly, a QCD may be the highest-impact first move to consider. It reduces your AGI, may help with Medicare IRMAA and Social Security taxation, and can satisfy your RMD once those begin at 73.
• If you hold appreciated stock in a taxable brokerage account, contributing it directly to a DAF — rather than selling it and donating cash — may help you avoid capital gains tax while still receiving a deduction for the full market value.
• If your annual giving is consistent but your itemized deductions fall just below the standard deduction threshold, bunching two years of giving into a DAF every other year may produce a meaningful federal tax benefit that you'd otherwise lose entirely.
• If more than one of these applies, you might use QCDs for a portion of your giving (the part that comes from your IRA) and a DAF funded with appreciated stock for the rest. The strategies complement each other.

The best starting point? Pull out your most recent tax return and look at three numbers: your AGI, your total itemized deductions (or whether you took the standard deduction), and the balance in your traditional IRA. Those three figures can tell an advisor a great deal about which strategies may benefit you most.

Making Your Generosity Go Further

Charitable giving is one of the few areas of financial planning where thoughtful structure can simultaneously benefit you, the charities you support, and your heirs. But the benefit only materializes if the giving is set up correctly — and as Carol and Dave discovered, the default approach often leaves meaningful tax savings on the table.

The right strategy depends on your age, account types, income level, and existing deductions — exactly the kind of personalized analysis that a financial advisor can help with. If you'd like to explore how these strategies might apply to your situation, we'd welcome the conversation.

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References

1. IRS. "Publication 501 (2025), Dependents, Standard Deduction, and Filing Information." https://www.irs.gov/publications/p501
2. Morningstar. "IRS Adds New Reporting Code for Charitable IRA Gifts." November 11, 2025. https://www.morningstar.com/retirement/irs-adds-new-reporting-code-charitable-ira-gifts
3. Fidelity. "Qualified Charitable Distributions (QCDs)." 2026. https://www.fidelity.com/retirement-ira/required-minimum-distributions-qcds
4. NerdWallet. "IRMAA Brackets 2025: What They Are and How They Work." 2025. https://www.nerdwallet.com/article/insurance/medicare/what-is-the-medicare-irmaa
5. Centers for Medicare & Medicaid Services. "2026 Medicare Parts A & B Premiums and Deductibles." November 14, 2025. https://www.cms.gov/newsroom/fact-sheets/2026-medicare-parts-b-premiums-deductibles
6. IRS. "Publication 526 (2025), Charitable Contributions." https://www.irs.gov/publications/p526
7. IRS. "Publication 915 (2025), Social Security and Equivalent Railroad Retirement Benefits." https://www.irs.gov/publications/p915
8. IRS. "Topic No. 409, Capital Gains and Losses." 2025. https://www.irs.gov/taxtopics/tc409
9. Kiplinger. "IRS Updates Long-Term Capital Gains Tax Thresholds for 2025." November 7, 2024. https://www.kiplinger.com/taxes/new-irs-long-term-capital-gains-tax-thresholds
10. Kiplinger. "Extra Deduction for Those Over 65 to Change Again for 2025." December 5, 2025. https://www.kiplinger.com/taxes/tax-deduction-change-for-those-over-65

Disclosure

This content is for informational purposes only and should not be considered tax, legal, or financial advice. Consult a qualified financial professional before making any investment or tax-related decisions.

Advisory services are offered through Sonmore Financial LLC, an Investment Advisor in the State of Arizona. This material represents an assessment of the market environment at a specific point in time and is not intended to be a forecast of future events, or a guarantee of future results. This information should not be relied upon by the reader as research or investment advice regarding any funds or stocks in particular, nor should it be construed as a recommendation to purchase or sell a security. Past performance is no guarantee of future results. Investments will fluctuate and when redeemed may be worth more or less than when originally invested.