Charitable Giving: The Benefits of Charity That go Beyond Kindness

Alexis Kibbe, CFP®

Financial Planner


Charitable giving can provide many benefits, from a sense of fulfillment and community building to helping minimize taxes.

Charitable Giving: The Benefits of Charity That go Beyond Kindness

Charitable giving can provide many benefits to the giver that go beyond being kind and generous to charities — from a sense of fulfillment and community building to helping minimize taxes.

According to the National Philanthropic Trust, charitable giving in the U.S. hit $499 billion in 2022, which is larger than the gross domestic product (GDP) of some countries. 1 The largest source of U.S. charitable giving came from individuals. While charitable donations usually increase every year, they went down in 2022, after reaching record numbers for needs brought on by the COVID-19 pandemic.2

Reasons for giving

Why do so many people feel compelled to give? With more than 1.54 million charitable organizations in the U.S., it’s a very personal decision. There are a variety of qualitative and quantitative reasons why an individual or family might be charitable.

Personal connection: You support causes that matter to you on a personal level and align with your values. For example, if you care about animals, you may donate to an animal shelter. Or perhaps you have a close friend with a health issue, so you donate to a charity that supports research for that illness.

Community support and building: Many people donate in support of local community projects. For example, if you’re concerned with food security in your area, you may donate to a food pantry or volunteer your time at the organization. Along the way, you’ll meet others supporting the same cause and become a part of the community working towards a common goal.

Family values and bonding: Families often share similar values and, therefore, support a cause together. This can lead to large charitable achievements and memories that last a lifetime. In addition, gifting through a family fund each year can help bring your family closer together and build a legacy.

Increased happiness: Two psychologists from the University of Chicago and Northwestern University carried out a study to determine if people experienced any increase in happiness levels when giving away money vs. spending it on themselves.3 The study showed that people experienced more happiness over time when giving money to others.

Benefits of charity

While you may not associate taxes with donations to charity, your charitable contributions can help reduce your tax burden. The IRS provides tax benefits specifically for those who donate to non-profit organizations with a 501(c) tax-exempt filing status. Gifts can include cash, securities, real estate, art, clothes, books, and more. If you volunteer your time, the IRS even lets you deduct miles driven in service of charitable organizations (14 cents per mile for 2024).

Here are some other benefits to giving:

1. Lower your tax bill: If you itemize deductions on your tax return, charitable donations can help you lower your taxable income up to 60% of your adjusted gross income (AGI) for donations to public charities and up to 30% for donations made to certain private foundations, veterans organizations, fraternal societies, and cemetery organizations. Any dollars gifted above these limits can be carried forward for five subsequent tax years. Your AGI limit percentage also varies by the type of asset you’re donating, whether it’s cash, capital gains property (typically investments held longer than one year), or ordinary income property.

2. Reduce your taxable estate: If your estate is subject to estate tax, gifting assets can help reduce the size of your taxable estate. For example, if your taxable estate is above the estate tax exemption limits, the amount above the limit will be taxed at the highest estate tax rate, which is currently 40%. The 2024 federal estate tax exemption limits are now $13,610,000 for an individual and $27,220,000 for a married couple.

3. Help avoid capital gains taxes: Gifting highly appreciated stocks can be a win-win situation for the donor and the charity. For example, if you received equity compensation at a low stock price and the value has since doubled, you can avoid additional taxes and capital gains by gifting these stocks. When you gift stock to qualified charities, you don’t pay capital gains tax on the stock — and neither does the charity. In essence, you end up gifting the full value of your stock and having a greater impact than if you had sold your stock first, paid the capital gains tax liability, and then made the charitable donation. Read more about how you can use your concentrated positions to maximize your charitable giving.

Charitable strategies and vehicles to kick start your giving

Want to get started but not sure how? Here are some ideas to consider:

  • Establish an annual gifting amount. If you have highly appreciated, low-cost basis stocks in your investment portfolio, talk to your financial or tax advisor about which stocks make sense to donate. You can also discuss how much to gift per year based on your individual tax situation.
  • Involve your family in your giving. If you’re passionate about philanthropy and want to pass on charitable values to your children and heirs, you can establish a private foundation or set up a donor-advised fund. There are pros and cons to using a private foundation or a donor-advised fund, so it may be worthwhile to discuss your charitable giving intentions with your advisor before deciding which strategy to use.

1. Private foundations. With private foundations, there can be extensive legal and administrative responsibilities, including keeping detailed records of your charitable activity, meeting with your foundation’s board of directors, gifting/spending approximately 5% of the foundation’s prior year’s average net investment assets, and filing a separate tax return by May 15. You should also keep in mind that the foundation’s finances are public information for others to access, so this is not an ideal option for families who prefer to keep their matters private. The private foundation’s net investment income is also subject to a 1-2% excise tax. Before starting a private foundation, be sure to talk to your financial or tax professional to understand the level of commitment required.

2. Donor-Advised Funds. Unlike private foundations, donor-advised funds require less maintenance since the recordkeeping is handled by the fund custodian. Once you open a donor-advised fund, you will receive a tax deduction in the year you fund it. You can decide which charities you want to benefit at a future date, which allows your funds to keep growing for as long as you want while also maximizing your donations.

  • Make a qualified charitable donation (QCD). If you’re retired and have IRA assets, you will need to begin taking required minimum distributions from your IRA once you turn age 73, or you’ll be charged a 25% penalty on the undistributed amount. With a QCD, you can fulfill your required minimum distribution requirement by re-directing the distribution to charities of your choice, up to $105,000/year (and another $105,000 for your spouse if you’re married), without adding to your taxable income.
  • Gift your assets while taking advantage of income generation. Charitable remainder trusts allow you to draw income from the trust each year for life or for a specified term. The remaining trust assets are then gifted to a charity of your choice. Charitable lead trusts are essentially the inverse, where income is paid out to charities each year for a specified term, and the remainder is then distributed to your trust beneficiaries.

Do your research

It’s important to properly research charities to ensure they’re financially healthy, that they qualify for a charitable deduction, and that they also allocate donation proceeds in a way that leads to positive results for the organization. If you are a Mercer Advisors client, talk to your advisor about your charitable giving intentions and how you can optimize tax savings while accomplishing your charitable goals.

If you are not a client of Mercer Advisors and want to learn more about the benefits of charitable giving, let’s talk.


1 “Charitable Giving Statistics”, National Philanthropic Trust, 2022

2“Charitable giving in 2022 drops for only the fourth time in 40 years: Giving USA report”, AP News, June 20, 2023.

3“Giving, Rather Than Receiving, Leads to Lasting Happiness: Study,” Huffington Post, December 20, 2018.

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