Washington’s new income tax includes something most taxpayers won’t expect: a charitable deduction. Section 309 of ESSB 6346 allows taxpayers to subtract qualifying charitable contributions from their Washington base income. But there’s a catch — the deduction is capped at $100,000 per year. That cap limits the tax planning value, but doesn’t eliminate it. Combined with strategies that reduce federal adjusted gross income directly, charitable giving remains one of the most effective tools for managing Washington’s 9.9% tax.
(For an overview of ESSB 6346, see Washington’s New Income Tax: What Founders, Investors, Athletes, and High Earners Need to Know. For the full tax landscape, see Washington State Taxes.)
The §309 Charitable Deduction
Section 309 of ESSB 6346 provides a modification to Washington base income for charitable contributions that qualify under IRC §170. This means the same contributions that are deductible on your federal return — cash gifts to public charities, appreciated property to qualifying organizations, contributions to donor-advised funds — also reduce your Washington taxable income.
The critical limitation: the deduction is capped at $100,000 per tax year. For a taxpayer with $2 million in Washington taxable income, the $100,000 deduction reduces the tax by $9,900 (9.9% × $100,000). That’s meaningful, but it’s not going to transform the overall tax picture for someone with income well above the $1 million threshold.
The deduction applies to Washington base income — not to federal AGI. This is an important distinction. Strategies that reduce federal AGI directly (like qualified charitable distributions from IRAs) provide a double benefit: they lower the starting point for Washington’s calculation AND may keep income below the $1 million threshold entirely. The §309 deduction, by contrast, only reduces Washington base income after the federal AGI starting point is already set.
Donor-Advised Funds and the Bunching Strategy
A donor-advised fund (DAF) allows you to make a large charitable contribution in a single year, take the full deduction in that year, and then distribute the funds to charities over time. This “bunching” strategy has been popular at the federal level since the 2017 Tax Cuts and Jobs Act raised the standard deduction, and it applies equally well to Washington’s income tax.
The Washington application works like this: in a year when your income significantly exceeds $1 million — say you’re exercising stock options or closing a business sale — you contribute a large amount to a DAF. The §309 deduction is still capped at $100,000 for Washington purposes, so the bunching strategy’s primary Washington benefit is ensuring you claim the full $100,000 deduction in your highest-income year rather than spreading smaller gifts across years when you might be below the threshold.
The bigger value is at the federal level. A $500,000 DAF contribution in a high-income year can save $185,000 or more in federal taxes (at the 37% bracket), while also saving $9,900 in Washington tax through the §309 cap. The federal savings dwarf the Washington savings, but they work together.
Pre-2028 opportunity: If you’re planning a large charitable gift anyway, making it in 2026 or 2027 — before Washington’s tax takes effect — means you capture the federal deduction without needing to worry about the Washington deduction cap. After 2028, the same gift saves you an additional $9,900 in Washington tax (via the §309 cap), but the federal benefit is available regardless of timing.
Charitable Remainder Trusts (CRTs)
A charitable remainder trust is a more sophisticated tool. You transfer appreciated assets to the trust, the trust sells them without recognizing capital gains, and you receive an income stream for a period of years (or for life). The remainder goes to charity when the trust terminates.
The Washington tax benefit of a CRT operates at the federal AGI level, not through the §309 deduction. When you fund a CRT with $2 million in appreciated stock, the trust sells it without capital gains tax. Your annual income stream from the trust is taxable, but it’s spread over many years — keeping your annual AGI lower than if you’d sold the stock outright. If spreading the income keeps your AGI below $1 million in some years, you avoid Washington’s tax entirely in those years.
Example: A founder with a $3 million stock position could sell outright and face approximately $198,000 in Washington income tax in the year of sale (9.9% × $2 million above the threshold). Alternatively, funding a CRT with the stock and receiving $200,000 per year over 15 years keeps annual income from this source well below $1 million — potentially avoiding Washington tax entirely if total AGI stays under the threshold. The tradeoff is that the charitable remainder goes to charity, not your heirs.
Qualified Charitable Distributions (QCDs)
For retirees with traditional IRAs, qualified charitable distributions are the single most powerful tool for managing Washington’s income tax. A QCD is a direct transfer from your IRA to a qualified charity — up to $105,000 per year in 2026 (indexed for inflation). The key benefit: QCDs are excluded from federal AGI entirely.
Because Washington’s tax starts with federal AGI, a QCD reduces your Washington base income dollar-for-dollar. This is better than the §309 deduction, which is capped at $100,000. A $105,000 QCD reduces your Washington tax by up to $10,395 — and the reduction is not subject to the §309 cap because it never enters AGI in the first place.
Who benefits most: Retirees with large traditional IRAs who are already making charitable gifts and whose total income (including required minimum distributions) puts them near or above $1 million. Instead of taking the RMD as income and then making a separate charitable gift, routing the gift through a QCD keeps the distribution out of AGI entirely.
For a detailed analysis of how retirement income interacts with Washington’s tax, see Is Retirement Income Subject to Washington’s 9.9% Tax?.
The Pre-2028 Planning Window
The most valuable charitable planning happens before January 1, 2028 — the effective date of Washington’s income tax.
Front-load large gifts into 2026–2027. Charitable contributions made before 2028 generate federal deductions without any Washington tax consequences (because the Washington tax doesn’t exist yet). If you’re planning a major gift — funding a DAF, establishing a CRT, making a large outright gift — doing it before 2028 captures the federal benefit in a year when Washington isn’t taxing you.
Coordinate with Roth conversions. If you’re doing Roth conversions before 2028 (to avoid Washington’s tax on the conversion), pairing the conversion with a large charitable gift can offset some of the federal tax hit. Convert $500,000 to Roth and contribute $500,000 to a DAF in the same year — the charitable deduction offsets the conversion income at the federal level.
Establish QCD habits now. If you’re over 70½ and making charitable gifts, switch to QCDs immediately. The federal AGI reduction benefits you now, and when Washington’s tax takes effect in 2028, the QCD habit will automatically reduce your Washington tax base.
Interaction with the Capital Gains Tax
Washington’s existing capital gains tax (chapter 82.87 RCW) and the new income tax are separate systems. The §309 charitable deduction applies only to the income tax — it does not reduce your capital gains tax liability. If you have $500,000 in long-term capital gains and make a $100,000 charitable contribution, the contribution reduces your income tax base but does not offset the capital gains tax.
However, strategies that reduce federal AGI (like CRTs and QCDs) can indirectly affect both taxes by changing the income composition that flows into each system. This interaction is complex and depends on your specific income mix — it’s worth modeling with your tax advisor.
The Bottom Line
The §309 charitable deduction is real but limited. At $100,000 per year, it saves a maximum of $9,900 in Washington tax — helpful but not transformative for high earners well above the $1 million threshold.
The more powerful strategies operate at the federal AGI level: QCDs for retirees, CRTs for concentrated stock positions, and DAF bunching for high-income years. These reduce the starting point for Washington’s calculation and can potentially keep total income below $1 million in some years.
And the most valuable window is now through 2027 — before the tax takes effect. Front-loading charitable gifts, establishing CRTs, and switching to QCDs before 2028 captures federal benefits without any Washington tax in play.
Exploring charitable strategies to reduce your Washington tax exposure? Book a 20-minute intro call to discuss how §309 and AGI-reduction strategies apply to your situation. Also see: Washington State Taxes Guide | Income Tax Planning Guide for High Earners
