As the year winds down, many of us will look to maximize our charitable contributions — not only to support the causes closest to our hearts, but also to reap some benefits come tax season. Donating to a qualified 501(c)(3) non-profit organization can potentially earn you a tax deduction. But how exactly does the process work?
First, a step back in time: In 2017, the Tax Cuts and Jobs Act (TCJA) brought about a seismic shift in tax deductions, particularly by significantly increasing the “standard deduction”—the amount each taxpayer can subtract from their taxable income to lower their IRS bill. Before this law, many people opted to “itemize” their deductions. This means they tallied up all qualifying deductions charitable donations, medical expenses, mortgage interest, state and local taxes, and more — and if their total exceeded the standard deduction, they’d itemize. But post-TCJA? Not so much.
For the 2024 tax year, the standard deduction stands at $14,600 for single filers and $29,200 for couples. This means you’d need to rack up more than those amounts in itemized deductions to make it worth itemizing. While some of us might reach that threshold with medical expenses or mortgage interest, the majority of us won’t even come close — approximately 90% of taxpayers no longer itemize.
The fact that smaller charitable contributions no longer “count” as tax-deductible write-offs has been a gut punch to charities. Americans donated $319.04 billion in 2023, which, while sounding hefty, actually marks a 6.4% decline compared to 2021. When adjusted for inflation, the drop is a staggering 13.4%, according to data from online fundraising platform DonorBox.
But if you want to give — and still see those rewards on your taxes — there’s a clever workaround. It’s called batching, which means strategically timing your donations to maximize your deductions. Let’s dive in.
According to the IRS, a donation or gift is considered tax-deductible if it's made to a recognized 501(c)(3) charitable organization. While not all 501(c)(3) nonprofits are charities (for example, your credit union is a 501(c)(3), but not a charity) any organization operating as a charity must be a 501(c)(3) in order for you to get a tax write-off for the donations you make.
Also, any donation you make must be made during the tax year in order for it to be deductible on your taxes for that year — in other words, you can’t make a donation in 2024 and write off in 2025. And if you donate property (such as real estate, furniture, or a used car), you can only deduct what’s known as “fair market value” of the property, per IRS rules. In other words, if you donate a car to charity, you can’t say it’s worth $20,000 when you could probably only get $2,000 for it if you sold it, based on its condition and market trends.
For those of us who have several donations we’d like to make — or a few deductions to take for things like medical expenses or mortgage interest — it may make financial sense to lump them into a single calendar year. That’s where batching comes in…
“For those who are philanthropically inclined, batching donations is a strategy that involves lumping together charitable donations into a single tax year rather than spreading them out over multiple tax years,” explains certified financial planner Will Brennan of Park Hill Financial Planning and Investment Management.
Essentially, with this strategy, you’d look to make big charitable gifts in alternate years — or even every 3-5 years — in order to donate enough so that you climb over the standard deduction threshold, which allows you to itemize your deductions for a bigger tax break. This strategy used to be called “lumping” or “clumping” and is now often referred to as “batching” or “bundling.”
“If you tend to make bigger contributions to nonprofits that are tax-deductible, but you don’t have a ton of other deductible items like mortgage interest, you might be losing out on reducing your taxable income—unless you batch donations,” says certified financial planner Rachel Lawrence, founder and CEO of Reverie Wealth.
During the years you don’t batch, you can simply take the standard deduction and set aside your gift money for your next batch in an upcoming year. If you find you need a bigger bump to get over the standard deduction threshold, consider combining charitable contributions with other deductible expenses, such as state and local taxes, mortgage interest, or substantial medical bills. In a year when a large medical bill hits, it might make perfect sense to bundle your charitable contributions to maximize your tax savings.
The stock market has had quite a run lately. If you’re sitting on gains, it’s important to remember that by giving away appreciated stock — i.e. stock that has grown in value — rather than giving cash, you can essentially give away more for less. How’s that? When you give appreciated securities directly to charity, you pay no capital gains taxes on the amount those securities have grown. Neither does the charity. It can sell the investments and keep the full value of your gift, which can be a winning move for everyone.
There’s one last strategy for anyone who is 59 ½ or older: you can give up to $100,000 out of an IRA each year directly to charity. This is of particular help for anyone looking to lower the RMDs (or required minimum distributions) that kick in at age 73 in an event to minimize income taxes. The gift counts toward those RMDs but it doesn’t count as income, so as long as you don’t need the money to live on (or if you were going to give out of savings) funneling the money through this channel can be a smart strategy.
Before diving into charitable donations, have a chat with your tax preparer. They may have additional insights to help you optimize your giving and set you up for success in your batching years.
And don’t forget to keep meticulous records of all donations and receipts. The IRS requires proof of donations to qualified 501(c)(3) charities, just as they do for qualified medical expenses.
Finally, a heads-up: This whole landscape may change soon. Many provisions of the Tax Cuts and Jobs Act, including the standard deduction, are set to expire on December 31, 2025. If Congress doesn’t act before then, the standard deduction could shrink by about half in 2026, making itemizing more attractive to a broader range of taxpayers. Stay tuned — we’ll keep you posted!