Most of the families we work with give to charity in some form, whether it’s the same gift to the same organizations every year or support for a cause when the moment calls for it. What nearly everyone shares is a desire to support what they value as tax-efficiently as possible. Year-end is a natural time to bring those goals together. It’s the last chance to make a gift count for this tax year, and it’s often when the picture is clearest: how much income you’ve had, which investments have grown, and whether a required distribution is coming due.
What Is a Donor-Advised Fund, and When Does It Make Sense?
A donor-advised fund (DAF) lets you contribute now, take the tax deduction this year, and recommend grants to charities over time. It is especially useful in a high-income year, when you want the deduction but aren’t ready to give it all away at once.
You can contribute cash, stock, or other assets to a DAF and take the deduction in the year you contribute. The funds are invested and can grow tax-free, and you recommend grants to specific charities whenever you’re ready. DAFs fit event-driven situations well, such as the sale of a business or a large bonus.
A DAF also makes it easy to “bunch” several years of giving into a single tax year. That matters more starting in 2026, because itemizers can now deduct only the portion of their charitable gifts that exceeds 0.5% of their adjusted gross income. Concentrating gifts into one year can help clear that threshold.
It is important to understand that a contribution to a donor-advised fund is irrevocable. Once the money is in the fund, it has been given to charity and can’t be returned to you. When we help clients choose a DAF, we also encourage them to look at what happens to any balance left in the account after they pass away. Some funds let you name a successor advisor, and others let you direct the remaining money to specific charities. Making that decision up front helps ensure your giving continues to reflect your values.
At Arbor, we help clients choose the DAF that fits their goals. Many use Fidelity Charitable, which we can access directly and which has no minimum to get started. Others prefer a local community foundation. We talk through your objectives, you make the choice.
Why Gift Appreciated Stock Instead of Cash?
Giving appreciated stock directly to a charity or DAF lets you avoid capital gains tax on the growth, while generally still deducting the full market value of the shares if you’ve held them for more than a year.
If you sell a stock that has grown and donate the proceeds, you pay capital gains tax first. Transfer the shares directly, and neither you nor the charity pays tax on the appreciation. This is especially helpful when a position has grown beyond what fits your risk tolerance: rather than selling and paying tax to bring it back in line, you can gift part of it.
The deduction for gifts of appreciated stock is generally limited to 30% of your adjusted gross income in a given year. Any amount above that limit can be carried forward and deducted over the next five years.
Whether it’s worth doing is case by case. If the gain is small, the savings may not justify the extra steps. And if a position is below what you paid, it’s generally better to sell it, capture the loss, and donate the cash.
At Arbor, we handle the transfer from start to finish. Once you tell us which charity you’d like to support, we select the most tax-efficient shares to give. After you sign off, we send them directly to the charity. For the gift to count this year, the shares must land in the charity’s account by December 31, so this is not a last-week-of-December task.
How Do Qualified Charitable Distributions Work?
If you’re 70½ or older, a qualified charitable distribution (QCD) lets you give directly from your IRA to a charity without the gift counting as taxable income. In 2026, you can give up to $111,000 this way, and once you reach RMD age, the amount you give counts toward your required minimum distribution for the year.
What makes a QCD valuable is how it’s treated at tax time. With a typical charitable gift, most of the tax benefit depends on itemizing deductions. A QCD works differently: the money is simply never counted as income. Keeping your income lower can help in other ways too, including reducing the income used to determine Medicare premiums and, for some taxpayers, the 3.8% net investment income tax.
A few things to keep in mind:
- QCDs can only come from an IRA, not a 401(k) or an ongoing SEP or SIMPLE IRA.
- The money has to go straight from your IRA to the charity. If it passes through your hands first, it doesn’t count.
- QCDs can’t go into a donor-advised fund.
- The charity must receive the gift by December 31, so it’s important to start early.
For clients who are charitably inclined, the choice is often between a QCD and gifting appreciated stock. The right answer depends on what assets you have and your overall tax picture. At Arbor, we work through that decision with you and your CPA. Most clients choose one approach in a given year, though those with larger giving goals sometimes use both.
How Does Annual Exclusion Gifting Work?
In 2026, you can give up to $19,000 to as many people as you’d like without using any of your lifetime gift and estate tax exemption or filing a gift tax return. A married couple can give up to $38,000 to each person together, though if the gift comes from one spouse’s assets, splitting it this way requires filing a gift tax return. Tuition and medical bills you pay directly to the school or provider don’t count toward that limit at all.
The annual exclusion resets every January 1, and any amount you don’t use this year doesn’t carry over. Gifts don’t have to be cash. Gifting stock that has grown in value can be especially effective. In some cases, a family member in a lower tax bracket may pay less tax on the gain when they sell than you would. Keep in mind that the recipient takes on your original cost basis, and for children under 19 (or full-time students under 24), the “kiddie tax” can tax those gains at the parents’ rate. In other cases, the recipient simply keeps the shares as a long-term investment.
Families also use the annual exclusion to encourage good habits. For example, some match a child’s or grandchild’s earnings or Roth IRA contributions.
Paying tuition or medical bills is a separate benefit with no limit, if you pay the school or provider directly. This applies to tuition only, not room, board, or books. If you reimburse a child for those costs instead, it counts as a gift.
It’s also easy to underestimate how quickly gifts add up. Paying a child’s rent, covering a large expense, or giving cash all count toward the $19,000. At Arbor, we encourage clients to keep their CPA informed about the ways they’re supporting children and grandchildren.
Giving Today, Thinking Ahead
For many families, these decisions are the beginning of a bigger conversation: how to take care of the people you love while passing along the values of hard work and stewardship that made it possible. It’s a conversation we look forward to exploring more in the new year.
Ready to Talk Through Your Giving Strategy?
Charitable giving works best as part of a coordinated plan, not a last-minute decision in December. Each of these strategies takes time to complete, and the right timing looks different for every family. If you’d like help thinking through your giving before year-end, give us a call.