If you make all of your charitable donations using your credit card, you are almost certainly leaving money on the table.

Whenever possible, you should donate appreciated securities, typically stocks, mutual funds, or ETFs that have increased in value since you purchased them (and that you have held for at least a year).  You receive a tax deduction equal to the full market value of the securities and you forever avoid having to pay capital gains taxes on the appreciation.  If you own any appreciated securities in a taxable brokerage account (individual or joint), these will almost always be a preferable donation option to cash.

Donating appreciated securities takes some time and effort.  You need to coordinate with the receiving charity to ensure that they can accept securities and then get their account info.  Paperwork will need to be completed.  Given the minor administrative cost, we typically recommend that our clients only donate appreciated securities when donating a large amount.  “Large” can mean different things to different people, but we generally recommend using securities only for donations of greater than $1,000.   (For the $50 you contribute to a friend’s 5k fundraiser, stick with the convenience of cash.)

Taking the tax strategy one step further, you might consider a Donor Advised Fund (DAF).  Opening a DAF account (which you can do with Geometric through Schwab Advisor Services) is like establishing a tiny family foundation, without the administrative burden.  Contributions of cash or securities are fully deductible in the year they are donated to the DAF.  The account balance can then be invested (without taxation of any future growth) and doled out to charities over whatever timeline the account owner desires.  The only requirement is that the original donation is “irrevocable” – once donated, all of the money eventually needs to be distributed to charitable organizations.

There are two main benefits of using a DAF:

First, you can be more strategic with the timing of your donations.  If your marginal tax rate is higher in one year than you expect it to be in future years (because you are changing jobs or retiring, or because you receive a large taxable inflow in one year, or because tax law is changing, etc.), it makes sense to donate as much as possible in the year of your highest marginal rate.  Using a DAF allows you to contribute in the higher-tax year and dole the money out during lower-tax years.

Second, a DAF makes it easier to contribute appreciated securities.  You can contribute the appreciated securities in one fell swoop to the DAF, then dole out smaller donations from the DAF in cash over time.

The need for strategic giving will soon become greater.  Recent tax reform will limit available deductions and increase the standard deduction starting in 2018.  This means that fewer taxpayers will itemize, thereby losing some or all of the tax benefit from charitable deductions going forward.  Depending on your circumstances, it might be wise to implement “charitable lumping,” in which you donate several years’ worth of charitable donations in a single year in order to exceed the standard deduction and receive a tax benefit, then skip or minimize donations in the interim years.  Using a DAF would make sense here, as you could donate in bulk to the DAF every few years (ideally using appreciated securities), then dole out cash from the DAF to charities as usual during the interim years.

One interesting note: our (entirely anecdotal) observation is that – all else equal – those who establish DAFs end up giving more to charity than those who don’t.  Contributions of appreciated securities often “feel” less painful than writing a check, as do the subsequent grants from the DAF to charities.  One could either view this as a feature or a bug of DAFs, but we prefer to view it as the former: more money ultimately ends up going to deserving charities.

As always, it is helpful to have an advisor who can help you to understand how charitable giving fits into your broader financial picture, and then to help you implement that giving as efficiently as possible.