How to Donate Money and Reduce Your Taxes This Holiday Season

Three tax-smart ways to give back include QCDs, direct gifts and gifting of appreciated shares.

A present is wrapped up with a red bow.
(Image credit: Getty Images)

It’s that time of year. Neighborhoods are twinkling with decorative lights, shoppers are filling stores in search of must-have gifts – and financial advisers are busy helping clients finalize their last-minute tax planning for 2021.

It’s also the season when many charities receive the bulk of their annual donations, as the holiday spirit inspires people to give a little more. As we near the end of 2021, investors who’ve seen their portfolios grow significantly due to gains in the stock market may be feeling particularly generous, especially if the painful challenges of the pandemic have opened their hearts to giving more freely.

If that idea resonates with you, your first instinct might be to mail a check or pledge a donation online to your favorite nonprofit. While doing so may be perfectly fine, you may be missing out on certain tax advantages that come with alternative ways of giving.

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Here are some ways to extend your generosity, and at the same time potentially reap tax savings.

Gain by Giving Through Qualified Charitable Contributions

If you’re age 72 or older, you need to make required minimum distributions (RMD) from your individual retirement accounts (IRAs). But if your RMD amount is more than you need to cover your expenses, you may have a great opportunity to give to charity while managing your tax bill. Simply have your IRA provider send the RMD amount – or more – directly to the charity.

This strategy is known as a qualified charitable contribution (QCD). The QCD fulfills your RMD obligation, and the amount distributed to the charity does not count toward your income taxes, as long as it’s less than the annual exclusion limit of $100,000. And if you file a joint return, your spouse can claim a QCD for up to $100,000 as well.

While the age for required minimum distributions has been moved to age 72, the ability to use QCDs is still age 70.5. So, tax filers within this age group, regardless of whether they itemize, can make a charitable contribution under the exclusion limit directly from their IRA to a qualifying charity.

Utilize Gift Tax Exclusions

In some situations, you may want to give directly to a person. If this is the case, you can take advantage of the annual gift tax exclusions.

The IRS allows anyone to give up to $15,000 (in 2021) to another person, and the gift transfers without adding to the taxable income of the recipient or counting against your estate and gift tax exclusion amount. Since each individual may make gifts up to the annual gift tax exclusion amount per recipient, you and your spouse can each give $15,000 to the same person. This means you and your spouse could jointly give a friend dealing with a financial hardship, for example – or a loved one who suffered an unexpected loss – $30,000 without gift tax consequences.

We know that many people plan to leave an inheritance to family members. However, in some cases you may want to consider giving to those family members prior to your death, so that you can see your loved ones use and enjoy your gifts. This idea of “giving while living” can be another way to use the $15,000 annual gift tax exclusion.

Similarly, you can also fund a child’s or grandchild’s education by contributing to a 529 college savings plan – but keep in mind the $15,000 per person gift tax exclusion applies (though there is an accelerated five-year gifting rule that could apply, see your tax adviser).

Gift Your Winners

When people donate to their favorite charity, they usually pull out their checkbook or credit card. But there is another option to give to causes you care about that may be very beneficial this year given the markets’ record highs: You can gift appreciated stock shares that you own. The organization can cash out the stock at the current asking price, and you won’t be taxed on the capital gains from the asset’s appreciation.

If you donate appreciated stock that you’ve held for more than a year, then you’ll generally be able to claim a potential charitable tax deduction for the full fair market value of the stock. This approach avoids paying the capital gains tax that would result if you sold the stock and donated the cash.

As you carry out your giving plans, consider using one of these tax-savvy strategies. They can make the holidays even happier for you and those you care about.


This information is not intended to provide investment advice and does not account for individual investor circumstances. Investment decisions should always be made based on an investor's specific financial needs, objectives, goals, time horizon and risk tolerance.


Ameriprise Financial, Inc. and its affiliates do not offer tax or legal advice. Consumers should consult with their tax adviser or attorney regarding their specific situation.


Ameriprise Financial Services, LLC. Member FINRA and SIPC.


This article was written by and presents the views of our contributing adviser, not the Kiplinger editorial staff. You can check adviser records with the SEC or with FINRA.

Marcy Keckler, CFP®, CRPC®
Senior Vice President, Financial Advice Strategy and Marketing, Ameriprise Financial

Marcy Keckler is the Senior Vice President, Financial Advice Strategy and Marketing at Ameriprise Financial. She leads the overall strategy for financial advice at the firm, including the Ameriprise Client Experience and Confident Retirement programs. Marcy has been with Ameriprise Financial (formerly American Express Financial Advisors) for more than 25 years in a variety of positions in financial planning, marketing and interactive development.