New Tax Law Reshapes Charitable Giving

Sweeping changes to the U.S. tax code are set to reshape how Americans give to charity. The “One Big Beautiful Bill Act” (OBBBA), signed into law on July 4, 2025, introduces major reforms to charitable contribution deductions. While most provisions take effect in the 2026 tax year, several—including changes to income tax brackets, the standard deduction, and the State and Local Taxes (SALT) cap—are effective as of January 1,  2025. These updates impact individual taxpayers—both itemizers and non-itemizers—as well as corporations and make permanent several elements of the 2017 Tax Cuts and Jobs Act (TCJA).

A Win for Non-Itemizers

For the millions of taxpayers who take the standard deduction, the OBBBA adds a provision allowing taxpayers who do not itemize to potentially claim a deduction for eligible charitable giving. Beginning in 2026:

• Deduction Limits– Non-itemizers can deduct up to $1,000 (single filers) or $2,000 (married filing jointly) for cash donations.
• Eligible Contributions-Only cash gifts to qualified public charities are eligible. Donations to donor-advised funds (DAFs) and private foundations are excluded.
• Why It Matters-This provision revives a tax benefit that was largely lost under the TCJA, which increased the standard deduction and reduced the number of itemizing taxpayers. It’s a meaningful incentive for everyday donors.

New Considerations for Itemizers

Taxpayers who itemize deductions will face new limitations on charitable giving starting in 2026:

• Deduction Floor Introduced – Only contributions exceeding 0.5% of a donor’s Adjusted Gross Income (AGI) are deductible. For example, someone with a $200,000 AGI must donate more than $1,000 before deductions kick in.
• Cap for High Earners – Those in the top 37% income tax bracket will see their deduction value capped at 35%. A $10,000 donation would yield a $3,500 tax benefit instead of $3,700.
• Permanent 60% AGI Limit – The TCJA’s temporary provision allowing cash gifts to public charities to be deducted up to 60% of AGI is now permanent.
• Expanded SALT Deduction – The SALT cap increases from $10,000 to $40,000 in 2025, with annual 1% increases through 2029. This may lead more taxpayers to itemize, indirectly allowing charitable deductions.

 

Corporate Giving Gets a Shake-Up

Businesses will also need to rethink their charitable strategies:

• New Deduction Floor – Starting in 2026, C-corporations can only deduct charitable contributions that exceed 1% of taxable income.
• Existing Cap Remains – The 10% maximum deduction limit still applies.
• Strategic Implications – This change may discourage smaller, routine donations and push companies to consolidate giving into fewer, larger gifts to surpass the new threshold.

 

Smart Strategies for Donors

With these changes on the horizon, strategic planning becomes essential for maximizing charitable tax benefits:

• Accelerate Giving in 2025 – High-income donors may want to front-load large gifts before the 35% cap takes effect.
• Bunching Contributions – Itemizers can group multiple years of donations into one tax year to exceed the 0.5% AGI floor, then take the standard deduction in other years.
• Use of Donor-Advised Funds (DAFs) – DAFs may enable donors to make a lump-sum contribution in a high-income year and distribute grants over time.
• Explore New Tax Credit Opportunities – Beginning in 2027, donors can claim up to $1,700 per taxpayer for gifts to organizations that provide K–12 private or religious school scholarships—regardless of itemizing status.
• Donate Appreciated Assets – Giving stocks or other non-cash assets can offer additional tax advantages, including avoiding capital gains taxes.
• Consider Estate Planning Moves – The federal estate and gift tax exemption increases to $15 million in 2026 ($30 million for married couples), making lifetime charitable giving more attractive for high-net-worth individuals.

Final Thoughts

The OBBBA marks a significant shift in how charitable giving is treated under U.S. tax law. While some provisions offer new opportunities, others introduce hurdles that require thoughtful planning. Whether you’re an individual donor or a corporate philanthropist, understanding these changes now will help you make the most of your generosity in the years ahead.

Please reach out to your tax professional and your advisor if you have any questions about your gifting strategy.