By Dr. Josh Daily, WCI Columnist
[AUTHOR’S NOTE: This column was drafted before the One Big Beautiful Bill Act (signed into law on July 4, 2025) took effect and therefore reflects pre‑OBBBA tax rules. Since then, two key changes may affect the examples provided:
- The SALT deduction cap has increased from $10,000 to $40,000 (for most taxpayers) beginning in 2025.
- A new charitable deduction of up to $1,000 (individuals) or $2,000 (married couples) is now available for those taking the standard deduction, starting in 2026.
While these updates may alter the numerical impact in the scenarios presented, the underlying strategic principles—clumping donations, donating appreciated shares, using Donor Advised Funds, and tax-loss harvesting—remain highly effective for many high-income professionals, particularly physicians who give generously or who have substantial taxable investment portfolios.]
For years, I gave to charity by donating cash. At the end of the year, I’d itemize my deductions and pat myself on the back, assuming I was maximizing my tax savings.
Only recently did I realize that while I was reducing my taxable income, I wasn’t saving nearly as much as I thought. Like many high-income professionals, I assumed I was receiving a deduction for all my charitable giving. However, the reality was that with today’s high standard deduction—$31,500 for Married Filing Jointly [2025 — visit our annual numbers page to get the most up-to-date figures]—much of my charitable giving wasn’t providing additional tax benefits.
For example, let’s say I:
- Have a SALT deduction of $10,000 (the maximum allowed)
- Pay $5,000 in mortgage interest
- Give $20,000 to charity
That brings my total itemized deductions to $35,000—which is only $3,500 more than the standard deduction. That means my charitable giving only reduced my taxable income by $3,500, not the full $20,000 I thought it did.
I’ve since changed my approach to maximize my tax savings while still giving the same amount to charity. Here’s how.
The Traditional vs. Optimized Giving Strategy
The Traditional Approach
Many high-income professionals take the traditional approach to charitable giving: they donate cash, itemize deductions every year, and assume all contributions reduce taxable income. While this can provide some tax benefits, it is often less efficient than other methods.
A More Tax-Efficient Strategy
Instead of donating cash every year, a better approach involves:
- Donate appreciated shares of index mutual funds instead of cash to eliminate capital gains taxes.
- Clump charitable donations every other year (or every third or fourth year) by either making larger direct donations to charities or contributing to a Donor Advised Fund (DAF), which allows charities to receive steady annual distributions while you take larger deductions in certain years.
- Replenish your brokerage account by reinvesting the cash you would have donated.
- Tax-loss harvest when markets dip to generate deductible losses.
- Use $3,000 per year of harvested losses to offset ordinary income while carrying forward the rest.
A Surprising Insight: Taxable Brokerage vs. Roth IRA
For charitable givers, a taxable brokerage account can sometimes be more tax-efficient than a Roth IRA. Unlike a Roth, taxable accounts allow tax-loss harvesting, which provides ongoing tax savings. This can be used to:
- Offset up to $3,000 per year of ordinary income.
- Accumulate large carryforward losses to offset future capital gains from selling stocks, real estate, or a business.
When combined with donating appreciated shares, a taxable account can replicate many of the tax benefits of a Roth IRA—plus the ability to tax-loss harvest.
More information here:
In Praise of Giving
The Tax-Efficient Charitable Giving Strategy
Step #1 Max Out Tax-Advantaged Accounts, Then Invest in a Taxable Brokerage Account
After maxing out your 401(k), HSA, and Backdoor Roth IRA, invest additional savings in a taxable brokerage account using low-turnover index funds.
Step #2 Tax-Loss Harvest
When the market drops, sell investments at a loss and reinvest in similar funds. This allows you to capture tax-deductible losses without losing market exposure.
Step #3 Donate Appreciated Shares Instead of Cash
Once your brokerage account has significant unrealized gains, stop donating cash. Instead, donate appreciated shares, which eliminates capital gains tax on those shares while still providing a full charitable deduction for their market value.
Step #4 Replenish the Brokerage Account with Cash
Take the cash you would have donated and buy back index funds, effectively stepping up the cost basis and reducing future capital gains.
Step #5 Clump Charitable Giving Strategically
To maximize deductions, make lump-sum donations every second, third, or fourth year, either directly to charities or through a DAF. This allows you to:
- Take the standard deduction in off years.
- Itemize in donation years for greater tax savings.
Step #6 Continue This Strategy Throughout Life
Stick with low-turnover index funds to minimize taxable events. If your brokerage account grows too large, redirect surplus funds to other investments or expenses as needed.
Example: A Physician Family’s Tax Savings
Let’s imagine this scenario.
- Income: $500,000 per year
- Charitable contributions: $40,000 annually
- SALT deduction: $10,000
- Mortgage interest deduction: $5,000
- Federal marginal tax rate: 32%
- Note that this chart assumes the old $30,000 standard deduction.
Why This Strategy Can Beat a Roth IRA
A taxable brokerage account allows tax-loss harvesting, providing deductions that a Roth IRA does not. Donating appreciated shares eliminates capital gains taxes, making taxable accounts similar to Roth accounts in terms of tax efficiency. The key difference is that taxable accounts experience some tax drag from dividends and turnover, which can be minimized by investing in low-turnover index funds.
However, Roth IRAs still provide benefits, including:
- Asset protection in some states
- Tax-free growth and withdrawals
- No ongoing tax drag
While the example above shows that a taxable account can sometimes outperform a Roth IRA on an after-tax basis, I strongly recommend using both. Most high-income professionals will invest in a taxable account regardless, so if they give generously to charity, this strategy should be applied.
More information here:
Top 10 Ways to Lower Your Taxes and Lower Your Tax Bracket
Tax Policies: Enjoy Them But Also Reform the Right Ones
Additional Benefits of This Strategy
- Eliminates capital gains taxes on donated shares.
- Maintains flexibility through a DAF.
- Allows continued investment growth by replenishing the brokerage account.
- Simplifies tax filing by alternating between the standard deduction and itemizing
The Bottom Line
Traditional charitable giving leaves tax savings on the table. By clumping donations, tax-loss harvesting, and donating appreciated shares, physicians can save $4,500+ per year while maintaining their charitable giving. A well-structured taxable brokerage account can outperform a Roth IRA for charitable givers, thanks to tax-loss harvesting and the elimination of capital gains taxes.
With a few strategic tweaks, efficient charitable giving can become a powerful tool for long-term wealth optimization.
How do you organize your charitable giving? Are you interested in saving as much in taxes as possible, or are you looking for less hassle? Do you clump your charitable giving?