As 2025 draws to a close, individuals are evaluating their charitable giving options in light of significant changes in tax legislation. The One Big Beautiful Bill Act (OBBBA) introduced adjustments to the deductibility of charitable gifts, effective January 1, 2026. Taxpayers must consider whether to make donations before the year ends or wait until the new regulations take effect.
Understanding Charitable Deductions
For those who do not itemize deductions on their tax returns, the choice of when to donate may not seem crucial. However, starting in 2026, the standard deduction will increase to $15,750 for individual filers and $31,500 for married filers. Furthermore, from 2026 to 2029, the state and local tax (SALT) deduction limit will rise from $10,000 to $40,000. This change may incentivize some taxpayers to itemize their deductions in future years.
Currently, taxpayers who opt for the standard deduction typically cannot deduct their charitable contributions. The OBBBA changes this by implementing a permanent above-the-line deduction for charitable gifts of up to $1,000 per filer starting in 2026. Therefore, if individuals plan to donate up to $1,000, it may be more advantageous to wait until 2026 to maximize tax benefits.
Implications for Itemizers
For those who itemize deductions, the OBBBA introduces a new threshold that could affect charitable giving. Beginning in 2026, taxpayers will not be able to deduct the first 0.5% of their adjusted gross income (AGI) contributed to charity. This means that any contributions made must exceed this threshold before they can be claimed as a deduction. In contrast, there is no such threshold for donations made in 2025.
Taxpayers in the highest tax bracket, currently at 37%, should note that their charitable deductions in 2026 will apply at a lower offset rate of 35%. This change could significantly impact the tax benefits of charitable contributions. Both in 2025 and 2026, cash gifts to public charities remain deductible up to 60% of AGI.
For wealthier donors contemplating substantial contributions, it may be prudent to make these donations in 2025 to avoid the new limitations in the following year.
Strategies for Maximizing Charitable Contributions
Individuals planning to make large charitable donations might consider several strategies to optimize their giving. One option is to establish a Donor Advised Fund (DAF) with a financial institution or local community foundation. By contributing to a DAF in 2025, donors can secure a charitable deduction under the existing rules while distributing funds to charities in subsequent years.
Another approach is utilizing the Qualified Charitable Distribution (QCD) rules, which allow individuals aged 70.5 or older to transfer up to $108,000 annually from an IRA directly to a charity. Married couples can transfer up to $216,000 annually. These distributions count toward required minimum distributions and do not increase gross income, thus avoiding additional tax implications.
Additionally, those who regularly support specific charities may benefit from “bunching” donations into one year. For example, if a donor has an AGI of $200,000 and contributes $10,000 in 2026, only $9,000 may be deductible due to the 0.5% floor. By combining larger donations into a single year, donors can maximize their deductions.
As the year comes to a close, it is essential to consider the implications of charitable giving decisions carefully. With new regulations on the horizon, taking a strategic approach can yield significant tax benefits in the long run.
Ultimately, this season of giving not only presents an opportunity to support meaningful causes but also a chance to navigate the evolving landscape of tax laws. By planning ahead, individuals can end 2025 on a positive note while contributing to the greater good.
Teresa J. Rhyne is an attorney specializing in estate planning and trust administration in Riverside and Paso Robles, California. She is also the #1 New York Times bestselling author of “The Dog Lived (and So Will I).” For further inquiries, she can be reached at [email protected].
