How to make a bigger charitable impact in a high-income year
Maybe you sell a business you spent years building. Maybe you receive an inheritance. Maybe you leave an employer and receive a large severance package or a pension payout that pushes your taxable income far higher than usual. I have worked with people in all of those situations. In many cases, they were already charitable. They were already giving $5,000 or $10,000 a year to causes they cared about. Then life created a year where their income jumped, and suddenly there was an opportunity to do something much more meaningful with that giving.
This is one of the conversations I find most rewarding, because it sits at the intersection of intent and timing. The desire to give was already there. My role is to help people give in a way that creates more impact.
A common example: the business owner who sells
One example that comes up often is the business owner who has a major liquidity event. After years of building, they sell. It is a big life milestone. It is also a tax event. In that one year, they can find themselves in a much higher tax bracket than normal. When that happens, a charitable gift can do much more work than it would in an average year.
I often talk to clients in that situation about using a donor advised fund.
The easiest way to think about it is this: instead of writing the same annual cheque out of cash flow every year, you make a larger gift in the high-income year, place it into the donor advised fund, and then let that fund make the gifts over time. The tax credit is claimed when it is most valuable, but the giving can continue for years.
Why this approach can work so well
First, this approach to charitable giving can take pressure off future cash flow. A person who has always wanted to give does not have to keep funding the same annual gifts from income year after year.
Second, it does not lock them into one charity forever. This is a point I spend a lot of time on, because people sometimes assume a large gift means a final decision. It does not. One client had originally been directing gifts toward their church. Over time, that relationship changed. Because the money was in a donor advised fund, they were able to redirect future giving to a different church that better reflected where they were in life. The giving continued, but the flexibility remained.
That is why I like this approach for the right person. It is structured, but not rigid.
From reactive giving to intentional giving
I also think it helps people move from reactive giving to intentional giving. A lot of generous people give in the moment. They write a cheque when someone asks. They contribute at the grocery store checkout. They support causes as they come across them. There is nothing wrong with that.
But when someone is already inclined to give, and they happen to be in an unusually high-income year, I want them to at least know there may be a more effective option.
I have had clients say, “I do not want to put $100,000 into one charity.” Fair concern. They do not have to. That is exactly why the donor advised fund works so well. The gift can be made in the year where the tax benefit is strongest, while the actual annual distributions can still be spread out across different charities over time. One year the support may go to a church. Another year it may go to a health cause, a community program, or something their family is newly passionate about.
Start with generosity, then build the strategy
The point is not to give for the tax credit alone. I do not start there. I start with desire. If there is no real intent to give, then this is not the conversation. But if the desire is already there, then it makes sense to ask a better question: how do we make that generosity go further?
That is what I want people to understand.
A high-income year can create stress. It can also create opportunity. For the right person, it may be the best time they will ever have to establish a long-term charitable strategy, make a larger impact, and do it in a way that fits the reality of their tax situation.
That does not mean every person needs a donor advised fund. They do not. There is no one answer that fits everyone. Some people are better served with annual gifts. Some may be better served through gifts of securities or other planning strategies. Every plan should reflect the person.
The real opportunity
If you are heading into a year with unusually high income, and charitable giving already matters to you, do not wait until December and write the same cheque you always do. There may be a much more powerful way to turn that one unusual year into many years of meaningful support.
What begins as one extraordinary year can become a legacy of giving that lasts for generations.
