Charitable Giving and Taxes: QCDs, Donated Stock and Donor-Advised Funds

Two people can give the same amount to the same charity and end up with very different tax results. The difference lies in what they give and how: a check, a gift of shares, a transfer straight from an IRA or a contribution to a donor-advised fund. The final quarter of the year is when most Americans give, and the method is worth understanding before the December rush.

This explainer covers the main options, how they compare and the records the IRS expects. It describes how the rules work in general; it is not advice for any particular household, and figures that change each year are best checked at irs.gov.

The starting point: itemizing versus the standard deduction

Charitable gifts to qualified organizations have long been deductible only for taxpayers who itemize, meaning their total itemized deductions, such as state and local taxes, mortgage interest and gifts, exceed the standard deduction. Since the standard deduction roughly doubled in 2018, most households have taken it instead, so their gifts produced no federal tax benefit.

Federal legislation enacted in 2025 changes the picture from the 2026 tax year. It introduces a limited deduction for certain cash gifts to public charities by taxpayers who do not itemize, and it adds a floor for itemizers, so only giving above a set share of income counts. The details, including dollar caps and which gifts qualify, are set out in IRS guidance, and anyone planning a significant gift should read the current version of Publication 526.

Whatever the rules, a deduction only applies to gifts to qualified organizations. The IRS Tax Exempt Organization Search tool lets you check whether a charity is eligible to receive deductible contributions. Gifts to individuals, political campaigns and most foreign charities are not deductible.

Option 1: Cash

Cash, including checks, credit cards and payroll giving, is the simplest gift. For itemizers, cash gifts to public charities can be deducted up to a percentage of adjusted gross income (AGI), with any excess carried forward for up to five years. Cash is also the only type of gift that qualifies for the new non-itemizer deduction, and gifts to donor-advised funds are excluded from it.

The trade-off is that cash comes from money that has usually already been taxed. For donors holding investments that have gained in value, there is often a more efficient source.

Option 2: Appreciated stock and funds

Donating shares, mutual fund units or ETFs held for more than one year that have risen in value can provide two benefits at once:

• No capital gains tax on the appreciation, because the shares are given rather than sold. The charity, as a tax-exempt organization, can sell them without owing tax.
• A deduction for the full fair market value on the date of the gift, for donors who itemize, subject to a lower AGI limit than cash.

The holding period matters. Shares held for one year or less generally produce a deduction limited to what the donor paid, not their current value. It also only makes sense for investments that have gained. For holdings that have lost value, selling them, using the capital loss and donating the cash is generally the better route. Our guide to capital gains tax covers how gains and losses are taxed.

In practice, the donor asks their brokerage to transfer shares directly to the charity's brokerage account. Many larger charities publish transfer instructions; smaller ones may not have an account, which is one reason donor-advised funds are popular for gifts of stock.

Option 3: Qualified charitable distributions from an IRA

A qualified charitable distribution (QCD) allows IRA owners aged 70½ or older to send money directly from a traditional IRA to an eligible charity. The amount is excluded from taxable income entirely, rather than being included and then deducted.

That structure has several consequences:

• It works without itemizing. Because the money never enters taxable income, the benefit does not depend on deductions.
• It can satisfy required minimum distributions. For owners who have reached RMD age, a QCD counts toward the year's required withdrawal. Our explainer on required minimum distributions covers the timing rules.
• It keeps AGI lower. A lower AGI can affect other items calculated from income, such as how much of Social Security benefits is taxed and income-related Medicare premium surcharges.

The rules are strict. The transfer must go directly from the IRA custodian to the charity; money withdrawn first and then donated does not qualify. There is an annual per-person limit, now indexed for inflation, which the IRS publishes each year. Donor-advised funds, private foundations and supporting organizations cannot receive QCDs. QCDs are generally not available from active employer plans such as 401(k)s, and the charity must provide the same written acknowledgment as for any other gift.

Option 4: Donor-advised funds

A donor-advised fund (DAF) is an account held by a sponsoring public charity, often affiliated with a brokerage or a community foundation. The donor contributes cash or assets, receives an immediate deduction if they itemize, and then recommends grants to charities over time. Meanwhile the money can be invested.

DAFs are useful for:

• Separating the tax timing from the giving decision. A donor can contribute in a high-income year and distribute grants over several years.
• Giving complex assets. Sponsors can often accept appreciated stock and sometimes other assets that small charities cannot handle.
• Simplifying records. One contribution receipt replaces many.

The contribution is irrevocable. Once the money is in the fund, it belongs to the sponsor, and the donor's role is advisory. Sponsors charge administrative fees, and the investments carry fees of their own.

Bunching: concentrating gifts into one year

Because deductions only help itemizers, and only above the standard deduction, some donors "bunch" two or more years of planned giving into a single tax year. In that year, they itemize; in the following years, they take the standard deduction. A DAF often makes this practical, because the donor can make the large contribution in one year and still spread grants to charities evenly.

The new itemizer floor that starts in 2026 makes bunching more relevant, not less, because concentrated gifts clear the floor more easily than small annual ones.

Comparing the options

The records the IRS expects

Good records are what make a deduction stand up:

• Any cash gift needs a bank record or written communication from the charity.
• Gifts of $250 or more require a contemporaneous written acknowledgment from the charity, stating the amount and whether you received goods or services in return.
• Noncash gifts over $500 are reported on Form 8283, and larger noncash gifts may require a qualified appraisal, although publicly traded securities are generally valued at market price.
• QCDs appear on Form 1099-R as ordinary distributions, so the donor or preparer must report them correctly as nontaxable on the return.

Putting it together

For many households, the most efficient order depends on age and holdings: QCDs for IRA owners over 70½, long-held appreciated shares for those with large unrealized gains, and cash for everyone else, with bunching and DAFs as tools for timing. For retirees, the choice also interacts with how Social Security, pensions and IRA withdrawals are taxed.

Before December, confirm the charity's status, check the current year's limits in IRS Publication 526 and 590-B, and leave enough time for brokerage and IRA transfers, which can take longer than a card payment. Those with large or complex gifts may want a tax professional's view.