Charitable giving isn’t just about generosity. It’s also a powerful tax planning strategy when done correctly. For individuals and businesses in Tennessee and Mississippi, understanding how to align your giving with IRS rules can provide meaningful support to causes you care about and reduce your tax burden.
With National Philanthropy Day in November, it’s the perfect time to explore how charitable giving can be part of a thoughtful financial and estate plan. Here’s what you need to know.
Understand What Counts as Charitable Giving
To qualify for a tax deduction, your donation must go to a qualified 501(c)(3) organization. This includes most nonprofits, churches, educational institutions, and charitable foundations. Contributions to individuals, political campaigns, or crowdfunding pages usually don’t qualify for a deduction.
Examples of qualified donations:
- Cash or check contributions
- Donated goods or property
- Stocks or appreciated securities
- Qualified charitable distributions (QCDs) from IRAs (for those 70½ and older)
Itemize to Deduct
To receive a tax benefit for charitable giving, you typically need to itemize deductions on your federal return using Schedule A. This is especially important now that the standard deduction is higher. It changes every year but at the time of writing is:
- $14,600 for single filers
- $29,200 for married couples filing jointly
If your total itemized deductions, including mortgage interest, property taxes, medical expenses, and charitable giving, don’t exceed the standard deduction, you won’t see a tax benefit from charitable contributions alone.
Tip: Bundle donations in a single year to exceed the threshold. For example, if you usually donate $5,000 per year, consider giving $10,000 every other year instead to maximize tax efficiency.
Donate Appreciated Assets, Not Cash
One of the most tax-efficient ways to give is by donating long-term appreciated assets, such as stocks, mutual funds, or real estate. Here’s why:
- You avoid capital gains tax on the appreciation.
- You can deduct the full fair market value of the asset (subject to limits).
For example, if you bought stock for $1,000 and it’s now worth $5,000, donating it means:
- The charity receives the full $5,000
- You deduct $5,000
- You avoid paying capital gains tax on the $4,000 gain
This strategy is especially useful for business owners and investors in both Mississippi and Tennessee who have low-basis assets.
Consider a Donor-Advised Fund (DAF)
A donor-advised fund allows you to make a large charitable donation now (and receive an immediate deduction), but distribute the funds to charities over time. This is ideal if:
- You had a high-income year (e.g., business sale or large bonus)
- You want to manage charitable giving over several years
- You want flexibility in choosing which nonprofits to support later
You can contribute cash or appreciated assets to the fund and recommend grants in future years. It’s like creating your own private foundation, without the red tape.
Use Qualified Charitable Distributions (QCDs)
For individuals age 70½ and older, qualified charitable distributions allow you to donate up to $100,000 per year directly from your IRA to a qualified charity.
Benefits of QCDs:
- They count toward your required minimum distributions (RMDs) but are not included in taxable income.
- They help lower your adjusted gross income, which can reduce taxation of Social Security or Medicare premiums.
- You don’t have to itemize to benefit.
QCDs are especially valuable for retirees in rural Tennessee communities, where fixed incomes and Medicare-related tax issues can make tax-efficient giving even more important.
Watch Your Deduction Limits
The IRS sets limits on how much you can deduct based on your adjusted gross income (AGI). For 2025:
- Cash donations to public charities can generally be deducted up to 60% of your AGI
- Appreciated assets are usually limited to 30% of AGI
- Excess amounts can often be carried forward for up to five years
A tax attorney or CPA can help you plan large donations around these limits to avoid missing out on deductions.
Tie Giving to Your Estate Plan
Charitable giving can also be used to reduce estate taxes, leave a legacy, and align your wealth with your values.
Some common estate planning tools include:
- Charitable trusts: Set up a charitable remainder trust (CRT) or charitable lead trust (CLT) to provide income to you or your heirs while benefiting a charity.
- Bequests: Leave a specific gift to a nonprofit in your will or revocable trust.
- Beneficiary designations: Name a charity as a beneficiary on retirement accounts or life insurance policies to avoid income taxes on those assets.
This is especially important if you’re expanding operations or wealth into Tennessee, where inheritance taxes were repealed, but federal estate taxes still apply for high-net-worth individuals.
Work with a Tax Attorney or Planner
Tax law and charitable giving rules are complex and ever-changing. What’s allowed today may be revised by Congress or IRS regulations tomorrow.
A knowledgeable tax attorney familiar with Mississippi and Tennessee law can:
- Help you structure donations to maximize impact and minimize tax
- Align charitable giving with estate and business planning goals
- Ensure compliance with IRS rules and documentation requirements
At Lancaster Law Firm, we serve individuals and business owners throughout North Mississippi and now rural Tennessee, helping them give strategically, reduce taxes, and create meaningful legacies.
Need help creating a giving plan that protects your wealth and supports your values? Contact Lancaster Law Firm today for a consultation.
