Big Beautiful Bill's Effect on Charitable Giving
Unless you've been heads down hiding under your air conditioner the last month or so (and who could blame you), you surely know that the "One Big Beautiful Bill Act" (BBB) was signed into law on July 4 by President Trump.
Key among the provisions are some of the most significant changes to tax benefits for charitable giving in recent memory, reshaping how philanthropy will be treated under the nation's tax code. The changes are largely positive for lower- and middle-income taxpayers, while a mixed bag for higher-income taxpayers.
Let's take a quick look!
First, with broad support and appeal, is a new deduction that can be used by taxpayers who do not itemize deductions but instead claim the standard deduction. Such non-itemizing filers may, beginning in 2026, deduct up to $1,000 in charitable donations (but only monetary ones) if filing single, or $2,000 if filing married filing jointly.
This new deduction may sound familiar. That's because a similar one was temporarily available during the COVID-19 years of 2020 and 2021.
In another change, and one not so favorable, taxpayers who do itemize will soon only be able to deduct charitable contributions to the extent they exceed 0.5% of their adjusted gross income (AGI). For example, a taxpayer with $150,000 in AGI will not be able to deduct the first $750 of their giving, but only the portion exceeding that.
Corporations will also now be subject to a floor, with only donations in excess of 1% of taxable income allowed as a deduction.
Up until passage of the BBB, there was no such floor. This provision also kicks in for the 2026 tax year.
This next change represents a significant shift in tax policy with regard to charitable giving, not to mention an increase in complexity.
Again, beginning in 2026, taxpayers who find themselves in the highest tax bracket of 37% will have a cap placed on the value of the tax benefit derived from their donations. The tax benefit of their charitable donations will now be capped at 35% of the gift's value rather than the top 37% rate.
So, for example, $10,000 in donations will yield only a $3,500 tax benefit instead of the $3,700 in tax savings under current law. This makes the net cost of making donations more expensive, thus potentially discouraging higher levels of philanthropy by those with such high levels of income.
And finally, the BBB permanently extends the existing law that allows one to deduct in any given year up to 60% of AGI for cash contributions to 501(c)(3) public charities. Historically, this has been set at 50% of AGI but was raised temporarily to 60% a few years back. In both cases, any excess amount can be carried over and potentially deducted in future years.
As a tax advisor and planner, I'm always on the lookout for ideas to maximize tax savings, and this case is no exception. Here are some ideas to consider:
• If the new law will negatively affect you in 2026, you may want to consider making larger gifts this year to maximize the deduction benefit.
• Much like we advise doing with other deductions that are subject to AGI floors, sometimes bunching donations in certain years so that they exceed the new AGI floors may make sense.
• If you have already made multi-year pledge commitments, should you consider pre-funding those in 2025 to maximize their impact on your taxes?
• Never forget that donating appreciated assets can maximize your tax benefits. Under the new law, they may be more valuable than ever.
