Many young attorneys recognize that they can make a significant impact on their local communities in myriad ways, with many of these attorneys donating some of their salaries to meaningful charitable causes. Donating to charities can be an excellent way to support causes beyond pro bono legal work; however, there are many best practices and pitfalls to mind when planning to donate. Like legal practice, charitable giving is best done by understanding applicable tax laws, carefully researching how to give, and intentionally incorporating charitable giving into your personal finances.
Donors should understand the applicable tax laws to maximize their giving for their personal finances and their intended charities. First, donors should review whether their intended charity qualifies as a tax-exempt organization for federal tax purposes. These organizations are granted tax-exempt status by the Internal Revenue Service by qualifying under one of the subsections of Section 501(c) of the Internal Revenue Code. If a donor gives to one of these tax-exempt organizations, the donor may qualify for a tax deduction on the donor’s income taxes. This may be important to some donors, but not all, depending on their tax situation and giving goals.
Next, donors should understand their potential tax deductions relative to their donations and tax circumstances. Through 2025, donors can give cash to public charities, including to a Donor Advised Fund (DAF), and receive an itemized deduction of up to 60 percent of their adjusted gross income (AGI). A donor’s AGI is determined as all income earned in a tax year less certain adjustments to income (above-the-line deductions).
Since the Tax Cuts and Jobs Act of 2017 (TCJA) was passed, the standard deduction for federal income taxes has nearly doubled, meaning that many donors choose to take this standard deduction rather than itemize their deductions. The tax impact of charitable donations for donors may not be as relevant; however, the TCJA is scheduled to sunset on December 31, 2025, and without further congressional action, the standard deduction will revert back to the amounts in 2017, indexed for inflation. Therefore, donors may want to talk with their accountants or financial advisors about the tax benefits of charitable giving depending on their specific tax circumstances for a given year.
A few ways to maximize charitable giving include giving to a public charity (rather than a private foundation created by a donor or a member of their family), donating appreciated stock rather than cash, and contributing larger amounts to a DAF to make future charitable gifts rather than individually giving smaller amounts for a period of years.
Giving to a public charity allows a donor to increase their itemized deduction to 60 percent of their AGI, compared with 30 percent of their AGI for gifts to a private foundation, which could double the amount that a donor could give and still receive an itemized deduction.
In addition, donors may want to consider what property to contribute. Donating long-term appreciated assets like stock, bonds, or real estate to charities provides an additional benefit that the donors do not need to pay capital gains on the appreciation and can take an itemized deduction for the full fair market value of the asset; the itemized deduction for such asset is limited, however, to only 30 percent of the donor’s AGI for a donation to a public charity, and only 20 percent of the donor’s AGI if to a private foundation.
Finally, donors who plan to itemize their deductions for a tax year might choose to donate large amounts to a DAF to “bunch” multiple years’ worth of charitable giving in such a year. A DAF is a charitable giving account sponsored by a financial institution or community foundation for which a donor can recommend how the assets contributed are invested and when to make grant recommendations to qualifying charities. A DAF can also be a low-cost option for engaging multiple generations within a family in charitable giving.
Donors may wish to discuss their specific circumstances and goals with an attorney, accountant, or financial advisor to understand their charitable giving options.
Cash is king for many nonprofits, and one of the easiest ways for a young attorney to give is through a cash donation. Donors should carefully document when and how much they give to each nonprofit and whether the nonprofit qualifies as a public charity, private foundation, or neither. For cash gifts over $250, donors should request contemporaneous written acknowledgment from the charity for substantiation. This acknowledgment should also include a statement of whether the charity provided anything in return for this donation.
If donors make noncash donations valued at more than $250 but less than $5,000, the acknowledgment should include a description of the donation, including the donation’s cost and acquisition date by the donor and its current fair market value. Noncash donations valued at more than $5,000 may require additional substantiation, and this type of giving should be discussed with tax advisors before making such a gift.
If a donor receives a benefit from making a contribution, the donor can only deduct the value of the contribution less the value of the benefit received. For example, if you buy a ticket to a fundraising gala or charity ball, the ticket may include, in addition to the ticket price, a statement of the contribution, which should be saved as substantiation for tax purposes.
Typically, a donor cannot deduct the value of services given to a tax-exempt organization, but the donor may be able to deduct some amounts paid in giving such services. These amounts paid must be unreimbursed, directly connected with such services, expenses the donor made only because of such services, and not personal, living, or family expenses. For example, if a donor paid for the postage costs for a tax-exempt organization’s mailing, the donor could be reimbursed for these costs. Donors who make these types of payments may wish to discuss their specific circumstances with a tax advisor before and after making such payments.
As donors’ income and wealth grow, they may wish to explore more sophisticated charitable giving options with their tax advisors. Other options may include naming a tax-exempt organization as a beneficiary of an insurance policy or a qualified retirement plan or under a will; purchasing a charitable gift annuity; establishing a private family foundation; setting up a charitable limited liability company; and creating a charitable trust with both charitable and noncharitable beneficiaries. These options might be worth exploring with a tax advisor, which may accomplish a host of income and estate tax, family, and charitable planning goals.
Young attorneys can support their local communities and desired causes through charitable giving. These donors should consider the tax effects of such giving and explore some of the different assets, vehicles, and amounts to give and whether their desired recipients are qualified organizations under the Internal Revenue Code. Ultimately, young attorneys need to be intentional about their charitable giving by developing a plan to give and, for those with questions, to contact their advisors for support and guidance.
