As holiday giving season kicks into high gear, donors face a charitable landscape that is significantly different from the one they navigated a year ago, following passage of the One Big Beautiful Bill (OBBB).
What's new? Making charitable contributions just got a little easier — but also a little harder. It's a mixed bag, and donor education is critical, with some changes already in effect for the 2025 tax year, and others set to begin January 1.
Generally, those who itemize and make charitable contributions might want to accelerate some donations to make them before the end of this year to maximize their effectiveness. There are several reasons.
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It's worth noting that diminished federal grant funding to charities this year has left an unmet need within the budgets of many nonprofits.
Luckily, asset prices are relatively healthy, making conditions ripe for a generous giving season when it's needed the most.
Less reason to itemize and a new deduction
Except for two brief periods (from 1982 through 1986 and again from 2020 through 2021), charitable contributions have been tax-deductible only as an itemized deduction.
Prior to 2018, itemizing was common: The standard deduction was relatively modest, and state income taxes were fully deductible for federal purposes, resulting in almost a third of all taxpayers being itemizers.
In 2018, the standard deduction was greatly increased, and many itemized deductions were reduced or eliminated, with the result that fewer taxpayers were able to benefit from itemizing. By 2022, less than 10% of taxpayers were itemizing.
Starting in 2026, the OBBB adds a new above-the-line deduction for charitable contributions made by non-itemizers, capped at $1,000 per year for individuals and $2,000 for married couples filing jointly.
This means that non-itemizing taxpayers can enjoy a tax deduction for at least part of their charitable contributions.
On the flip side, also beginning in 2026, taxpayers who itemize will find that their charitable contributions are limited by a "floor" consisting of 0.5% of the adjusted gross income (AGI) on the return.
For example, if your AGI is $100,000, you're entitled to a charitable contribution deduction only to the extent your contributions exceed $500 in the aggregate.
In other words, a taxpayer who itemizes and has $100,000 in AGI doesn't get any deduction for their first $500 of charitable contributions.
This limitation is applied in the aggregate, not per charity, so the overall charitable deduction in this example is reduced by $500, not each separate donation.
It's important to note that the above-the-line and floor changes are independent of each other. If you don't itemize, the new above-the-line deduction applies, and the floor is not applicable; if you itemize, it's the opposite.
Beginning in 2027, taxpayers who make donations to certain scholarship-granting organizations that provide scholarships to K-12 students will be entitled to a tax credit rather than a deduction.
A tax credit is more valuable because it directly reduces your tax rather than just the amount of income on which you're taxed.
More limits on itemized deductions
There are other important changes that affect charitable giving. For example, there's an important limitation on itemized deductions for taxpayers in the 37% marginal income tax bracket (single taxpayers with $626,350 and higher and married/joint filers with $751,600 and higher in taxable income in 2026).
Usually, an income tax deduction is "worth" the amount of the deduction multiplied by your marginal rate.
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In other words, if you're in the 24% marginal tax bracket, each $100 deduction reduces your tax by $24.
Starting in 2026, this will remain true for taxpayers in all the marginal brackets except those in the 37% bracket; taxpayers in that bracket will have all or a portion of their itemized deductions reduced by 2%.
As a result, a $100 deduction will be worth only a maximum of $35.
SALT going back up to $40,000 should drive more itemizing
In the other direction, the limitation on the state and local tax (SALT) deduction for itemizers is going up by $30,000 (to a total of $40,000), though it phases out for higher earners. This change is already in effect for the 2025 tax year.
The more meager limit had significantly reduced the number of taxpayers who would benefit from itemizing. Now it might make more sense for those taxpayers to itemize and take advantage of the higher charitable contribution deductions available to those who do.
The bottom line: Bunching
Going forward, we might see more of the bunching strategy to maximize the reach of charitable contributions.
For example, suppose a taxpayer with a yearly AGI of $200,000 normally makes $10,000 in charitable contributions each year. Due to the 0.5% floor, a contribution of $10,000 in 2026 and 2027 will result in a deduction of only $9,000 each year, or a total of $18,000 for the two years.
However, if that taxpayer makes two years' worth of contributions in one of those years and skips the other, the total contribution of $20,000 is only reduced by $1,000, and the total deduction is $19,000.
Depending on the specific situation of the taxpayer, this could be combined with a strategy of not itemizing at all in the "off" years and taking the $2,000/$1,000 above-the-line deduction in those years, further leveraging the amount of tax-favored money going to charity.
All in all, OBBB will transform the landscape of tax-advantaged giving. It has benefits as well as drawbacks to donors, and proper planning will be essential to making sure your gifts go the longest way possible.
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