Charitable Gifting and the One Big Beautiful Bill

On July 4th, the One Big Beautiful Bill (OBBB) was signed into law. The effects on taxes are wide-ranging, and there has been much commentary on tax brackets, changes to the state and local tax (SALT) deduction, and other aspects of individual taxes. What has been less discussed prior to passage and signing are changes to the deductibility of charitable gifts. Here are the highlights.

Charitable gifts can be deductible even if you don’t itemize… to a point

Taxpayers who choose not to itemize their deductions may deduct cash donations to charity beginning in 2026. The maximum deduction will be $1,000 for single filers and $2,000 for those who are married filing jointly. About 90% of taxpayers do not itemize their deductions, so this will be an opportunity for them to save on taxes when making a cash donation to an approved charity.

For example: John and Jane will not itemize their 2026 tax return but will instead take the standard deduction of $31,500. They will give $4,000 to charity. Even though they do not itemize, they will be able to take a $2,000 charitable deduction above the line on their tax return, but not the full $4,000 gifted.

Deductions limited for people in the highest tax bracket

Beginning next year, people who pay taxes in the top 37% tax bracket will only be able to deduct 35% of their itemized deductions instead of the full 37%.

For example: Mike and Mary will be in the 37% tax bracket in 2026. They make charitable gifts, pay state and local income taxes, pay interest on their mortgage, and have other itemized deductions that total $100,000. While they pay taxes at the 37% rate, they will only save $35,000 in taxes rather than $37,000.

New hurdle to clear when deducting charitable gifts

In the past, charitable gifts could be deducted dollar for dollar against income when itemizing, so a dollar contributed to charity reduced your income by one dollar. Beginning in 2026, there will be a gifting threshold of 0.5% of Adjusted Gross Income (AGI) that will need to be met before deducting charitable gifts. Those who currently face a 7.5% AGI floor for deducting medical expenses will be familiar with the concept. The gifting threshold for corporations is 1%.

For example: Sam and Sarah have an Adjusted Gross Income of $400,000 and make charitable gifts of $20,000. In 2025, they were able to deduct the full $20,000 on their itemized tax return. However, beginning in 2026, the threshold they would need to clear before deducting gifts would be 0.5% of $400,000, or $2,000. Under the new law, only the amount above $2,000 is deductible, or $18,000.

So, what does this mean for charitable gifts and tax planning? Taxpayers in 2026 and beyond will need to be more thoughtful in their charitable gifting to get full savings on their taxes. Strategies to consider involve using one of our favorite charitable vehicles, the Donor Advised Fund (DAF). Giving to a DAF will allow you to take an income tax deduction in the year the gift is made and spread grants out of it to charities over several years. Gifts to a DAF can be made with cash, appreciated securities, and even other assets like real estate. For more information on DAFs click here.

Some other strategies for charitable gifts and tax planning beyond 2026 include:

• Moving gifts ahead into 2025: The limitation on deductions for the highest tax bracket and the floor for charitable gift deductions do not go into effect until 2026. Accelerating some or all the gifts you plan to make in 2026 into this year can avoid the limitation on deductions and the AGI floor.
• “Bunching” gifts: Going forward, consider making larger gifts to charity every other year to maximize the deductibility of those gifts. The more you gift in a year, the higher the percentage of it will be above the floor and maximize the deduction.
• Making direct gifts from your traditional IRA, especially if you are taking required minimum distributions (RMDs): Individuals 70 ½ or older can make qualified charitable distributions (QCDs) of up to $108,000 (adjusted annually for inflation) directly to charity without it being counted towards their taxable income, and also counting towards any required distributions they may need to make if they are 73 or older. This may be a more efficient gifting method than writing checks from a bank account. 
• Looking at strategies to reduce your Adjusted Gross Income: Work with your tax professionals annually to leave no tax stone unturned. Individuals may contribute to retirement accounts before taxes, subject to phaseout. If you have an SEP IRA or a Keogh plan, contributing to them can reduce your AGI. Small business owners may be eligible for many deductions that can significantly reduce their AGI.
• Advanced Estate Planning: Some strategies, such as charitable trusts and private foundations, offer unique benefits and flexibility for ultra-high net worth families. As 2025 approaches, these options become even more significant in maximizing both philanthropic impact and tax efficiency. It is crucial to collaborate with your entire estate planning team to ensure all elements are properly coordinated. Thoughtful planning now can help secure your charitable intentions for generations to come. By considering these approaches, you can integrate giving with your long-term financial goals and family values.

These are just a few methods to make the most of your charitable giving. Every situation is different, and these strategies can be combined in any number of ways to fit your personal goals. Reach out to your advisor to discuss how planning now can ensure that worthy causes close to your heart receive the full benefit of your generosity while reducing your tax bill.