[AUTHOR’S NOTE: This column was drafted before the One Big Beautiful Bill Act (signed into law on July 4, 2025) took effect and therefore reflects pre‑OBBBA tax rules. Since then, two key changes may affect the examples provided:
- The SALT deduction cap has increased from $10,000 to $40,000 (for most taxpayers) beginning in 2025.
- A new above-the-line charitable deduction of up to $1,000 (individuals) or $2,000 (married couples) is now available for those taking the standard deduction, starting in 2026.
While these updates may alter the numerical impact in the scenarios presented, the underlying strategic principles—clumping donations, donating appreciated shares, using Donor Advised Funds, and tax-loss harvesting—remain highly effective for many high-income professionals, particularly physicians who give generously or who have substantial taxable investment portfolios.]
For years, I gave to charity by donating money. On the finish of the 12 months, I’d itemize my deductions and pat myself on the again, assuming I used to be maximizing my tax financial savings.
Solely not too long ago did I notice that whereas I used to be decreasing my taxable revenue, I wasn’t saving almost as a lot as I believed. Like many high-income professionals, I assumed I used to be receiving a deduction for all my charitable giving. Nonetheless, the truth was that with right now’s excessive customary deduction—$31,500 for Married Submitting Collectively [2025 — visit our annual numbers page to get the most up-to-date figures]—a lot of my charitable giving wasn’t offering further tax advantages.
For instance, let’s say I:
- Have a SALT deduction of $10,000 (the utmost allowed)
- Pay $5,000 in mortgage curiosity
- Give $20,000 to charity
That brings my complete itemized deductions to $35,000—which is simply $3,500 greater than the usual deduction. Meaning my charitable giving solely lowered my taxable revenue by $3,500, not the complete $20,000 I believed it did.
I’ve since modified my method to maximise my tax financial savings whereas nonetheless giving the identical quantity to charity. Right here’s how.
The Conventional vs. Optimized Giving Technique
The Conventional Method
Many high-income professionals take the normal method to charitable giving: they donate money, itemize deductions yearly, and assume all contributions scale back taxable revenue. Whereas this may present some tax advantages, it’s usually much less environment friendly than different strategies.
A Extra Tax-Environment friendly Technique
As an alternative of donating money yearly, a greater method includes:
- Donate appreciated shares of index mutual funds as an alternative of money to get rid of capital positive aspects taxes.
- Clump charitable donations each different 12 months (or each third or fourth 12 months) by both making bigger direct donations to charities or contributing to a Donor Suggested Fund (DAF), which permits charities to obtain regular annual distributions when you take bigger deductions in sure years.
- Replenish your brokerage account by reinvesting the money you’d have donated.
- Tax-loss harvest when markets dip to generate deductible losses.
- Use $3,000 per 12 months of harvested losses to offset extraordinary revenue whereas carrying ahead the remaining.
A Shocking Perception: Taxable Brokerage vs. Roth IRA
For charitable givers, a taxable brokerage account can generally be extra tax-efficient than a Roth IRA. Not like a Roth, taxable accounts enable tax-loss harvesting, which offers ongoing tax financial savings. This can be utilized to:
- Offset as much as $3,000 per 12 months of extraordinary revenue.
- Accumulate giant carryforward losses to offset future capital positive aspects from promoting shares, actual property, or a enterprise.
When mixed with donating appreciated shares, a taxable account can replicate most of the tax advantages of a Roth IRA—plus the flexibility to tax-loss harvest.
Extra data right here:
The Tax-Environment friendly Charitable Giving Technique
Step #1 Max Out Tax-Advantaged Accounts, Then Put money into a Taxable Brokerage Account
After maxing out your 401(ok), HSA, and Backdoor Roth IRA, make investments further financial savings in a taxable brokerage account utilizing low-turnover index funds.
Step #2 Tax-Loss Harvest
When the market drops, promote investments at a loss and reinvest in comparable funds. This lets you seize tax-deductible losses with out shedding market publicity.
Step #3 Donate Appreciated Shares As an alternative of Money
As soon as your brokerage account has important unrealized positive aspects, cease donating money. As an alternative, donate appreciated shares, which eliminates capital positive aspects tax on these shares whereas nonetheless offering a full charitable deduction for his or her market worth.
Step #4 Replenish the Brokerage Account with Money
Take the money you’d have donated and purchase again index funds, successfully stepping up the price foundation and decreasing future capital positive aspects.
Step #5 Clump Charitable Giving Strategically
To maximise deductions, make lump-sum donations each second, third, or fourth 12 months, both on to charities or by a DAF. This lets you:
- Take the usual deduction in off years.
- Itemize in donation years for larger tax financial savings.
Step #6 Proceed This Technique All through Life
Keep on with low-turnover index funds to reduce taxable occasions. In case your brokerage account grows too giant, redirect surplus funds to different investments or bills as wanted.
Instance: A Doctor Household’s Tax Financial savings
Lets say this situation.
- Revenue: $500,000 per 12 months
- Charitable contributions: $40,000 yearly
- SALT deduction: $10,000
- Mortgage curiosity deduction: $5,000
- Federal marginal tax fee: 32%
- Observe that this chart assumes the outdated $30,000 customary deduction.
Why This Technique Can Beat a Roth IRA
A taxable brokerage account permits tax-loss harvesting, offering deductions {that a} Roth IRA doesn’t. Donating appreciated shares eliminates capital positive aspects taxes, making taxable accounts just like Roth accounts when it comes to tax effectivity. The important thing distinction is that taxable accounts expertise some tax drag from dividends and turnover, which will be minimized by investing in low-turnover index funds.
Nonetheless, Roth IRAs nonetheless present advantages, together with:
- Asset safety in some states
- Tax-free progress and withdrawals
- No ongoing tax drag
Whereas the instance above reveals {that a} taxable account can generally outperform a Roth IRA on an after-tax foundation, I strongly advocate utilizing each. Most high-income professionals will spend money on a taxable account regardless, so if they offer generously to charity, this technique needs to be utilized.
Extra data right here:
Prime 10 Methods to Decrease Your Taxes and Decrease Your Tax Bracket
Tax Insurance policies: Get pleasure from Them However Additionally Reform the Proper Ones
Further Advantages of This Technique
- Eliminates capital positive aspects taxes on donated shares.
- Maintains flexibility by a DAF.
- Permits continued funding progress by replenishing the brokerage account.
- Simplifies tax submitting by alternating between the usual deduction and itemizing
The Backside Line
Conventional charitable giving leaves tax financial savings on the desk. By clumping donations, tax-loss harvesting, and donating appreciated shares, physicians can save $4,500+ per 12 months whereas sustaining their charitable giving. A well-structured taxable brokerage account can outperform a Roth IRA for charitable givers, because of tax-loss harvesting and the elimination of capital positive aspects taxes.
With just a few strategic tweaks, environment friendly charitable giving can grow to be a robust device for long-term wealth optimization.
How do you arrange your charitable giving? Are you curious about saving as a lot in taxes as attainable, or are you searching for much less trouble? Do you clump your charitable giving?
