As the year winds down, many people are deciding which charities to support and how much to give. Far fewer stop to consider what they give or how they give it. With the S&P 500 entering the fifth year of its current bull market 1 , those two questions deserve attention, because a well-structured giving plan can increase your tax savings while allowing you to give more.
Most people default to giving cash. It is simple, and every charity accepts it. Your investments, especially those with large unrealized capital gains, are often a better source for your gifts. When you donate a stock or fund you have owned for more than a year, you can deduct its full market value on the date of the transfer, and you never pay tax on the gain. Because charities do not pay tax on investment income, the charity can sell the shares without owing capital gains tax either.
Once you know what to give, the next question is how. If you support several charities, arranging a separate stock transfer to each one can quickly become a roadblock. A donor advised fund (DAF) solves that problem. A DAF is a charitable giving account, available at most investment firms, that lets you decide which charities receive your gifts and when.
How a Donor Advised Fund works
Behind the scenes, the account is held at a sponsoring public charity, usually the charitable arm of a brokerage firm or a community foundation. You contribute cash or investments and receive your tax deduction in the year of the contribution. The DAF can sell the investments without owing capital gains tax, invest the proceeds tax-free, and send grants to the charities you recommend, this year or in future years. One transfer of stock can support as many organizations as you like.
Contributions are irrevocable, and grants cannot provide you a personal benefit such as event tickets. Gifts of appreciated investments are deductible up to 30% of your adjusted gross income (AGI), with any excess carried forward five years. For Michigan residents, the charitable deduction is federal only, but giving investments also avoids Michigan’s 4.25% tax on the gain.
Keep the Investment and Reset Your Cost Basis
Giving appreciated shares does not mean giving up an investment you want to own. Donate the shares to your DAF, then use the cash you would have given to buy the same investment back. Your charities receive the same amount, your portfolio looks the same, and your cost basis resets to today’s price. Consider an investor who planned to give $20,000 in cash and owns $20,000 of a fund bought for $6,000:
Give Cash | Give Stock, Rebuy with Cash | |
Charitable deduction | $20,000 | $20,000 |
Cost basis of the shares you own afterward | $6,000 | $20,000 |
Future federal and Michigan tax on the gain* | $3,927 | $0 |
*At a combined 28.05%: 20% federal capital gains, 3.8% net investment income tax, and 4.25% Michigan. Shares held one year or less, or worth less than you paid, are better handled other ways.
Bunch Several Years of Giving into One
Charitable gifts only reduce your taxes when your itemized deductions exceed the standard deduction, which for 2026 is $32,200 for married couples and $16,100 for single filers. For many families, annual gifts produce little or no tax benefit. A DAF lets you combine, or “bunch,” three to five years of giving into one year, itemize that year, and take the standard deduction in the years between, while the DAF continues your annual gifts so the charities you support see no interruption.
New rules that began in 2026 make bunching more valuable. Itemizers can now deduct only gifts above 0.5% of AGI, and top-bracket taxpayers receive about 35 cents of tax benefit per deductible dollar instead of 37. Bunching means absorbing that floor once rather than every year.
A strategy to explore: Roth IRA conversions
Because a bunched gift creates unusually large deductions, that year can also be an opportunity to convert part of a traditional IRA to a Roth IRA at a lower tax cost. A conversion affects your tax bracket, Medicare premiums, and Michigan taxes in ways that depend on your age and income, so it requires careful planning with your advisor and tax professional before year-end.
Act Before December 31
Stock transfers can take a week or more, so plan to open your DAF and start transfers by early December. If you are 70½ or older, qualified charitable distributions from your IRA may also fit alongside a DAF. Talk with your advisor about which approach best supports both your financial goals and the causes you care about.
1. Sparks, D. (2026, October 8). History says every S&P 500 bull market that reached its 4th birthday kept going. The Motley Fool. https://www.fool.com/investing/2026/10/08/history-says-every-s-and-p-500-bull-market-that-reached-its-4th-birthday-kept-going/
This article is for general information only and is not tax, legal, or investment advice. Consult a qualified professional about your situation.