What's the Most Tax-Efficient Way to Donate to Your Foundation?
Tax-efficient giving is one of the most powerful tools for family foundations. Whether you’re just starting out or optimizing an existing foundation, understanding what, when, and how to donate can help you maximize both your impact and your savings.
What’s the Best Thing to Donate to a Family Foundation?
Cash? Real estate? Stocks? To answer that, it’s important to understand how the IRS values each type of donation.
Cash:
Simple and straightforward. Donate $10,000, and that’s the exact value the IRS uses for your deduction. It’s easy, but not always the most tax-efficient.Assets like art or collectibles:
This gets trickier. If an asset’s value has dropped since you bought it, the IRS uses the current, lower market value. If it’s increased, you’re limited to your original purchase price (your cost basis). Not ideal for maximizing deductions.Publicly traded stocks held for over a year:
Here’s the golden ticket. When you donate long-term appreciated stocks, you can deduct their full market value—not just what you paid for them. This is one of the most effective tax-saving strategies available.
Example:
Purchased stock for $10,000 that’s now worth $50,000? Donating it allows you to deduct the full $50,000 without paying capital gains tax on the $40,000 gain. That’s a true win-win.
Why Donating Appreciated Stocks Is So Powerful
Donating long-term appreciated stock offers what can be described as a triple tax-saving combination:
Income tax savings: You receive a deduction for the stock’s current market value.
Capital gains tax avoidance: You don’t pay taxes on the stock’s growth.
Estate tax benefits: Donating reduces your taxable estate.
Transferring stock to your foundation also preserves liquidity. You’re not selling property or drawing from cash reserves—just reallocating assets from one account to another.
Example:
A $200,000 stock donation could provide up to $74,000 in tax savings for someone in the 37% bracket. Inside the foundation, those stocks can be sold or traded tax-free. If that $200,000 grows to $1 million, the foundation pays only 1.39% in tax—far less than the 20%+ capital gains tax an individual would owe.
This approach has become a cornerstone of smart, sustainable philanthropy.
What About Donating Real Estate?
Donating real estate is possible, but it’s rarely the best first move. Here’s why:
Limited deductions: The IRS bases your deduction on your cost basis, not current market value. Bought a property for $100,000 that’s now worth $500,000? You’re limited to deducting $100,000.
High income requirements: To fully benefit, you need a high income—especially for large properties.
Liquidity issues: Foundations must distribute 5% of assets annually. Real estate can make this requirement difficult to meet.
Complexity: Property is harder to divide for partial donations compared to stocks.
While real estate donations can work in certain cases, stocks remain more flexible, efficient, and easier to manage.
How Much Should You Donate?
There’s no minimum donation required to establish a family foundation. This flexibility allows for strategic giving that aligns with income cycles.
A strong benchmark is donating around 30% of your adjusted gross income (AGI):
20% in long-term appreciated stocks for maximum deduction value.
10% in cash for liquidity and flexibility.
This ratio works especially well for those in the 32–37% tax bracket and helps balance long-term giving with current tax efficiency.
Whenever possible, consider donating more in high-income years to make the most of your deductions.
Timing Your Donations: Why December Matters Most
Timing can significantly enhance your tax benefits. The best month to donate is typically December.
By year-end, you’ll have a clear view of your annual income, making deduction planning easier.
Most tax planning wraps up after October 15, so December is ideal for final adjustments.
Year-end donations also help fulfill the foundation’s 5% annual distribution requirement more effectively.
When reviewing finances at the close of the year, December donations often deliver the greatest strategic value.
Work With a CPA or Advisor
Every donor’s financial situation is unique. The ideal strategy depends on income level, investment mix, and philanthropic goals.
If you’re unsure what to donate or how much, a qualified CPA or wealth advisor can help you:
Identify assets with the greatest tax advantage.
Estimate deductions based on your income and portfolio.
Ensure IRS compliance for charitable giving and reporting.
Even if a foundation isn’t on your immediate horizon, tax planning should remain central to long-term wealth management. Smart planning equals smarter, faster growth.
5 Key Takeaways for Tax-Efficient Giving
Donate long-term appreciated stocks for the best tax efficiency.
Contribute more in high-income years to maximize deductions.
Aim for 30% of AGI — 20% in stocks, 10% in cash.
Make donations in December for optimal tax planning.
Collaborate with your CPA to tailor your strategy and ensure compliance.
By understanding what to donate, how much to give, and when to act, your family foundation can make a lasting difference—both in the community and in your long-term financial picture.
Consult A Tax Professional
If you are seeking tips & assistance to set up your family foundation, you could contact us to request a free consultation session by clicking the button below. We serve clients across different states of the U.S. and outside of the U.S., so we would love to provide you with the help you need!
This post is to be used for informational purpose only and does not constitute legal, business, or tax advice. Each person should consult his or her own accountant, attorney, or business advisor with respect to matters referenced in this post. Zhou Agency assumes no liability for actions taken in reliance upon the information contained herein.
