Defining success in philanthropy depends entirely on the goals an investor is trying to achieve, whether these are social, wealth transfer, personal or tax-deductibility objectives.
With the passage of the One Big Beautiful Bill (OBBB), new tax rules and opportunities are now available to help investors reach their goals.
OBBB's key changes to charitable giving
The OBBB introduced four important changes to tax laws affecting charitable giving:
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Standard deduction. Taxpayers who take the standard deduction will be able to claim a deduction for charitable contributions of up to $1,000 for single filers and $2,000 for joint filers.
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Itemized deductions. The individual deduction limit for cash contributions made to public charities is 60% of a taxpayer's adjusted gross income (AGI). This limit was previously scheduled to sunset and revert to 50% at the end of 2025, but the OBBB extends the current 60% limit.
0.5% floor. For individual taxpayers who itemize deductions, the OBBB creates a new floor of 0. 5% to be eligible to deduct charitable contributions. This means that individuals will be able to deduct only the value of charitable gifts that exceed 0.5% of their AGI — that's $500 for every $100,000 in AGI.
Deductibility cap. For itemizers, the tax law also caps the benefit of the total itemized deductions at 35 cents per dollar for taxpayers who are in the 37% tax bracket.
These changes for individual taxpayers are effective for taxable years beginning January 1, 2026.
While introducing a charitable deduction for taxpayers who don't itemize might encourage greater participation in giving, high-income taxpayers could see a reduced tax benefit from charitable deductions in the future.
In light of these changes, some donors might consider accelerating their contributions in 2025 using a donor-advised fund (DAF) to maximize the value of their contributions before the new changes go into effect.
Understanding donor-advised funds
DAFs are charitable accounts funded by individual donors but maintained and operated by a charity. Once a donor makes a contribution, the sponsoring charity is responsible for maintaining the account, investing contributions and distributing funds in line with the donor's advice.
Distributions are made whenever and to whomever the donor and the sponsoring charity direct. Unlike private foundations, which require a 5% distribution each year, the law doesn't require DAF funds to be deployed at any time.
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DAFs are treated as public charities for tax-deduction purposes; however, DAFs aren't qualified recipients of a qualified charitable distribution (QCD).
As a result, DAFs can't receive qualified distributions from retirement accounts or from nonitemizers seeking to take advantage of the new $1,000 below-the-line deduction for cash contributions.
Selecting the right DAF can be as important as selecting the eventual charitable recipients, and thanks to innovations in product development, investors have some compelling options.
For example, the recently launched Janus Henderson Charitable Investment Accounts provides a tax-deductible opportunity for investors with no account minimums, low contribution minimums, grants as low as $50, tax-free growth potential and an attractive fee structure.
The time is now
The OBBB has altered some of the rules of philanthropy, and investors should act ahead of the end of the year to secure the tax benefits provided by the new law.
This is especially true for high-income taxpayers who have an opportunity to accelerate contributions in 2025, implement a bunching or bundling strategy via a DAF and make the most of current tax regulations before they change.
To maximize deductibility and avoid application of the 0.5% floor, we believe itemizers should "prefund" charitable contributions into their charitable investment accounts this year.
A charitable gift of $5,000 made in 2025 generates a $5,000 deduction. That same $5,000 charitable gift made in $1,000 increments per year beginning in 2026 would create a total deduction of $2,500.
For a potentially better tax result, investors can "bunch" those charitable gifts into a DAF this year and make gifts to charity from the DAF in the coming five years.
As always when it comes to tax planning, investors should work with a trusted tax professional or financial adviser to create a plan that meets their values and goals.
Matthew Sommer is the Head of Janus Henderson Investors’ Defined Contribution and Wealth Adviser Services Team. He serves as Janus Henderson’s lead behavioral finance researcher and wealth strategist. Prior to joining Janus in 2010, Dr. Sommer spent 17 years at Morgan Stanley Wealth Management and its predecessors, Citi Global Wealth Management and Smith Barney, during which time his roles included director of financial planning and director of retirement planning.
Jeffrey R. Brooks is an Executive Director and Wealth Strategist with the Specialist Consulting Group at Janus Henderson Investors. Jeff brings to his role years of experience in both the practice of law as well as the financial services industry, working together with financial advisors and their high-net-worth and ultra-high-net-worth clients. His knowledge and real-world experience are invaluable for advisers and investors facing hurdles in the quest to achieve tax, wealth transfer, family governance, business succession and philanthropic goals.
The information contained herein is for educational purposes only, is not an account type recommendation, and should not be construed as financial, legal or tax advice.
Investing involves risk, including the possible loss of principal and fluctuation of value.
A donor-advised fund is facilitated by a tax-exempt public charity under sections 501(c)(3) and 509(a)(1) of the Internal Revenue Code. Contributions made to a donor-advised fund are considered an irrevocable gift and are not refundable. Once contributed, the charitable organization facilitating the donor-advised fund has exclusive legal control over the contributed assets.
Donors should carefully consider information contained in the prospectus, or if available, the summary prospectus, for the registered underlying mutual funds, including investment objectives, risks, charges and expenses. Donors can request a prospectus by calling Janus Henderson at 800-525-3713. Please read the prospectus carefully before making contributions.
Market fluctuations may cause the value of investment fund shares held in a donor-advised account to be worth more or less than the value of the original contribution to the funds.
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