What Gives with New Tax Bill? Changes for Charitable Giving

Big changes are coming to the tax treatment of charitable donations, thanks to the One Big Beautiful Bill Act. And as is true any time there’s a significant change to the tax code, it behooves most of us to reexamine our planning strategies.

Signed into law last month, the Act extends many provisions of the 2017 Tax Cuts & Jobs Act. It also introduces new limits on deductions, floors on itemized giving, and a federal tax credit for private and religious school donations, with potentially significant consequences for high-net-worth households.

Here’s a summary of the changes and what they may mean for anyone who makes charitable donations.

Charitable deductions for everyone, again

Starting in tax year 2026, if you don’t itemize, you can once again make tax-deductible charitable contributions, with increased limits up to:

·       $1,000 for single filers

·       $2,000 for married couples filing jointly

By some estimates, this broadened access to tax-deductible donations could generate up to $74 billion in giving over the next decade.

Created with ChatGPT 4o

Floors and ceilings

Also beginning in tax year 2026, if you do itemize and want to deduct your charitable donations, you’ll need to meet a new threshold of giving.

Total donations must exceed 0.5% of your adjusted gross income (your total taxable income, minus contributions to retirement accounts and other expenses). For example, if you report an adjusted gross income of $250,000, your donations for that tax year must be more than $1,250 to qualify for a tax deduction.

For corporations, total donations must exceed a 1% adjusted gross income floor. Corporate donations remain capped at 10% of taxable income, but contributions above that amount can be carried forward for up to five years. And contributions at or below the 1% floor can be carried forward in certain cases.

Caps for high-income taxpayers

After tax year 2025, tax benefits are capped for high earners.

If you’re in the top income bracket of 37% (that is, if your income is around $609,000 or more), you will no longer receive a 37% tax benefit for charitable contributions. Instead, your tax benefit is capped at 35%.

School voucher tax credit

This is perhaps the Act’s most unusual provision[CC2] [JP3] —a tax credit for charitable donations to qualified Scholarship Granting Organizations (SGOs), which support private and religious K-12 voucher programs.

Starting in tax year 2027, this federal tax credits will be applied to donations up to $1,700 per taxpayer each tax year. These donations can fund tuition, books, test fees, and other education-related expenses.

States must opt into the program, however, and many Democrat-controlled states may decline to do so. So far 19 states including New Hampshire, Rhode Island, Pennsylvania, Virginia, and Florida offer residents and business these credits. Those who live in states that haven’t opted in still may be able to contribute to SGOs in participating states.

In Brief: Changes to Tax Treatment for Charitable Giving

Source: TIFF Investment Management

The upshot: Start planning this year

To make the most impact with your charitable donations--and get the most tax benefit from them—you’ll need to plan and strategize your giving.

First, since the Act’s deduction limits and caps don’t take effect until after tax year 2025, consider accelerating large gifts this year.

From tax year 2026 onward, instead of making yearly donations that don’t meet the tax-deductible threshold, consider bunching your contributions every other year or less frequently. You can still give the same total amount, and you’ll meet the new deductibility  requirements.

Alternatively, a donor-advised fund allows you to bunch your giving to one entity while giving you control over the timing and recipients of gifts. And, of course, your contributions to donor-advised funds can be bunched into larger donations every other year or less frequently.

Those age 70½ and older can make large gifts and bypass the 0.5% floor and 35% cap by making a qualified charitable distribution (QCD) from an IRA. Single taxpayers can transfer up to $108,000 (double that for joint filers). QCDs count toward your required minimum distribution but are excluded from your taxable income.

Give with intention

For those who give much—whether that’s a large dollar amount or generous proportion of your income—charitable giving must now be more deliberate. Timing, donation amounts, income thresholds, and vehicle selection will all influence tax efficiency and your charitable effectiveness.

To discuss your giving strategy before the end of 2025, schedule a meeting today with your Tableaux Wealth advisor.