Charitable Stacking for Tax Savings

Hello everybody. My name is Ty Bernicke, and today I’m going to talk to you about how charitable stacking can provide significant tax savings.

The Problem: Missing Out on Tax Savings

One of the biggest problems that we see with our clients who give to charity—or I should say, people who are thinking about becoming a client—is they’re donating to charity on an annual basis, and they’re not avoiding any taxes when they do so.

So today, I want to talk to you about how you can avoid taxes by donating to charity, by doing it in a different way through what we call charitable stacking.

Why Many Donors Don’t Get a Tax Benefit

When many people donate to charity, they will donate by simply writing out a check from their bank account. And many of them will not receive an income tax benefit, because if your itemized deductions don’t exceed your standard deduction, you don’t get any benefits from donating to charity. And I’m going to explain what this means in more detail.

Understanding the Standard Deduction

So, in 2025, if you are a single filer, your standard deduction that you get to offset the first $15,000 of income is $15,000 for single filers.

If you’re married filing a joint tax return, you get a $30,000 standard deduction, which essentially means that the first $30,000 of income that you have coming in, you don’t have to pay tax on that first $30,000. You could potentially deduct more than $30,000 if you’re married filing a joint tax return, if the total of your itemized deductions exceed that amount.

So let’s say your total itemized deductions were $40,000. Well, $40,000 is more than $30,000, so now you get to deduct the $40,000 amount because it’s higher than the standard deduction. The problem is, many people don’t have itemized deductions that exceed that $30,000 value, and therefore they don’t get any benefit by giving to charity. But I’m going to explain how you might be able to actually get a deduction by doing that—by doing charitable stacking—which I’m going to use an example to illustrate.

Example: Jim and Brenda

So we’ve got Jim and Brenda, and they want to continue to give $5,000 per year to charity. That’s kind of the amount that they’ve settled on, and they do pretty much that similar amount every year. And both Jim and Brenda also have an appreciated stock mutual fund. What that means is that’s sitting in a non-qualified or a taxable account, and it’s grown in value—a significant amount.

So they have that amount there, and they could use some of that mutual fund to donate to charity as opposed to writing out a check. That’s why I included that in this example.

We’ll assume that their current itemized deductions are $20,300, which again, that’s lower than that $30,000 standard deduction. So presently, they’re just not getting any benefit from donating to charity as far as a tax deduction goes. We’ll assume that their combined federal and state tax rate is 15% for capital gains and 30% for ordinary income, just to keep things simple.

Because they’re only donating $5,000 a year, they’re staying below that $30,000 standard deduction.

The Donor-Advised Fund Solution

So one of the things they could do is they could open up something called a donor-advised fund.

With a donor-advised fund, you can add cash into it by writing out a check. The other thing you can do is you can donate an appreciated security. And by donating it, not only do you avoid the capital gains by donating it to the donor-advised fund, but you can take an immediate tax deduction and donate money out of the donor-advised fund in future years.

So in this example, what we’re going to assume is that this couple decided to do five years’ worth of intended charitable contributions, and they add it to the donor-advised fund in one year, which is $25,000. So once it goes into this donor-advised fund, they don’t have to donate all that money in the first year to get $25,000 worth of itemized deductions—they can put it into the donor-advised fund.

There are many companies that offer these. A lot of the big brokerage firms that you have heard of have donor-advised funds, and once it’s in the donor-advised fund, there’s actually different investments that you can use. They have stock mutual funds, bond mutual funds, they have fixed accounts. So depending on your risk tolerance, you can tailor your portfolio within your donor-advised fund, similar to how you can do it with an IRA or a 401(k) plan.

And then when you’re ready to donate in future years, you can take the balance of the donor-advised fund and slowly trickle it out to the charities that you want. In this example, we assume that they donated $25,000 in year one that they intend to use over the next five years.

What Does This Look Like From a Savings Perspective?

So again, their current itemized deductions are only $20,300. They’re donating $5,000 a year. In the example, we assume that they stack five years’ worth of donations, or $25,000, into the donor-advised fund.

In this circumstance, because they used a highly appreciated stock, they’re not only going to get a tax deduction because they’re able to itemize their deductions now, but they also avoid paying tax on those capital gains that were embedded in the mutual fund or in the security that they owned.

And again, we’re going to assume that they’re married. So the way that this works is they’re going to get a charitable donation deduction for $25,000, which now will be added to their itemized deduction of $20,300. So now their itemized deductions are $45,300. Because of this large one-year donation, which is $15,300 greater than the normal $30,000 standard deduction, that is going to allow them to deduct an additional $15,300 on their tax return.

And given the tax rates that I shared with you previously, their anticipated tax savings in year one is $4,590 because they’re able to itemize their deduction. In addition to that, they avoided capital gains taxes of $3,000. In addition to that, while the money is sitting in the donor-advised fund, they’re not having to pay taxes on interest income, capital gains, and dividends.

So in this example, that’s a little over a $2,000 savings. So in one year, by using this strategy, that saved them $9,725 versus the previous way that they were doing that, which saved them nothing. $9,725 beats nothing every day of the week.

Final Thoughts

So if you do donate to charity, at the very least, consider donating highly appreciated securities to avoid the tax in the future on those highly appreciated securities.

Or even better, look at if charitable stacking into a donor-advised fund can make sense for you.