How The Wealthy Reduce Their Taxes Through Strategic Tzedakah Giving

By Jack Strulowitz

In the frum community, giving tzedakah is part of daily life. Many families give maaser, and many give more, supporting their children’s and grandchildren’s schools, their shuls, and a wide range of chesed and charitable organizations. Supporting local yeshivas and organizations is essential to our community’s prosperity. This time of year, that generosity is on full display. Yeshivas, schools, and nonprofits all run major fundraising drives because they understand that many families, particularly those with higher incomes and significant wealth, are looking to achieve certain tzedakah goals for the year. The most financially savvy donors use that same moment to their advantage, structuring their giving to reduce taxes and build long-term financial strength.

This year may be an especially advantageous time for charitable planning. Strong market performance has left many investors with significant unrealized gains, creating more opportunities for tax-efficient giving. Coordinating tzedakah with tax planning in a high-market environment can translate into meaningful savings while increasing the impact of each contribution.

Donating long-term appreciated stock is one of the most effective ways to give. When you transfer shares directly to a qualified charity, you receive a deduction for the full fair market value and avoid paying capital gains tax on the appreciation.

For example, a $50,000 stock position purchased for $20,000 carries a $30,000 unrealized gain. Donating the shares instead of selling them eliminates the tax on that gain and provides a deduction for the full $50,000. The result is a larger benefit for the organization and lower taxes for you.

This approach also works well with portfolio rebalancing. Families can donate appreciated holdings and then use cash to repurchase similar investments. The new purchase creates a higher cost basis, which means less taxable gains when those investments are sold later. It is an elegant way to align generosity, tax efficiency, and long-term investment management.

For those aged 70 years and 6 months or older, Qualified Charitable Distributions (QCDs) are one of the most efficient ways to give. You can transfer up to $108,000 per year directly from an IRA to a qualified charity. The transfer counts toward your Required Minimum Distribution but does not appear in your taxable income. As an added bonus, reducing adjusted gross income in this manner can help lower Medicare premiums and preserve other deductions.

A donor-advised fund, or DAF, can simplify giving across multiple causes. You contribute cash or securities to the fund and take the charitable deduction immediately, even if the money has not yet been distributed to an organization. The contribution is irrevocable, meaning the assets legally belong to the DAF sponsor, but you retain advisory privileges that allow you to recommend where and when the funds are granted.

In practice, reputable DAF sponsors almost always follow the donor’s recommendations, so you maintain practical control over how your charitable dollars are used. The assets inside the DAF can remain invested and continue to grow tax-free until you decide to make grants.

For households that give to several schools and shuls, including those attended by children and grandchildren, a DAF keeps everything organized. It also lets you combine multiple years of maaser into a single larger contribution during a high-income year, which can increase the tax benefit of the deduction.

For families with larger estates or ongoing charitable goals, private foundations provide another level of structure and control. A foundation can hire staff, make grants, and even operate its own charitable programs. Unlike a DAF, it allows the family to oversee all investment decisions and maintain direct governance over how funds are distributed.

Foundations require more administration and public reporting, but they also create continuity across generations. Parents and grandparents can include children on the board, teaching them about the virtues of chesed and responsibility in a formal setting. Some families use both a foundation and a DAF, with the foundation serving as a long-term legacy vehicle and the DAF providing flexibility for quicker or smaller gifts.

Families with significant assets or highly-appreciated real estate or stocks often use charitable trusts to combine giving with long-term planning.

A Charitable Remainder Trust (CRT) allows a donor to place assets in a trust, receive income for life or a set number of years, and donate the rest to charity. The donor receives an upfront deduction, and in New York, the assets can be sold inside the trust without triggering federal or state capital gains tax at the time of sale.

A Charitable Lead Trust (CLT) works in reverse of a CRT. You fund it upfront with cash, securities, or real estate, and the trust pays a set amount to charity each year for a fixed period. After that term ends, whatever remains goes to your heirs with the benefit being that the IRS has already treated that future inheritance as being worth much less when the trust was created, because the charity received the first claim on the assets. This discounted valuation lets more appreciation pass to heirs without using much of your estate-tax exemption, especially in low-interest-rate environments where it’s easier for the trust to outperform the IRS hurdle rate.

Giving in the frum community often focuses on the institutions that keep daily life going: schools, shuls, and local organizations that support families in need. With markets at record levels and tax policy always shifting, this is an ideal time to review how charitable giving fits into your overall financial plan. Evaluating which assets to donate, how to structure each gift, and when to execute it can make a real difference in after-tax results and long-term wealth. n

Jack Strulowitz is a Financial Advisor at Bernath & Rosenberg in Cedarhurst, NY, where he helps high–net worth individuals and families manage their investments and build comprehensive strategies for retirement, tax, and estate planning. For questions or to schedule a consultation, please contact [email protected] or 847-962-3352.

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. This information is not intended to be a substitute for specific individualized tax or legal advice. We suggest that you discuss your specific situation with a qualified tax or legal advisor. Stock investing includes risks, including fluctuating prices and loss of principal. Rebalancing a portfolio may cause investors to incur tax liabilities and/or transaction costs and does not assure a profit or protect against a loss. 

This material represents hypothetical examples and is not representative of any specific situation. Your results will vary. Securities and advisory services offered through LPL Financial, a Registered Investment Advisor. Member FINRA/SIPC.