As the year draws to a close, many individuals are contemplating their charitable contributions, particularly in light of new tax regulations coming into effect in 2026. The recent passage of the One Big Beautiful Bill Act has introduced significant changes that could influence whether taxpayers should consider making charitable donations in 2025 or wait until 2026.
One of the main considerations for taxpayers is the increase in the standard deduction. For individual filers, this will rise to $15,750, while married couples will see their deduction increase to $31,500. This change may affect those who do not itemize deductions, although they might find the new rules less impactful. Importantly, while taxpayers taking the standard deduction are usually unable to deduct charitable contributions, the upcoming tax law will allow a permanent above-the-line deduction of $1,000 for charitable donations starting in 2026.
Implications for Itemizers and Non-Itemizers
For those who do itemize deductions, the tax landscape is changing. Beginning in 2026, the first 0.5% of a taxpayer’s adjusted gross income (AGI) given to charity will not be deductible. As a result, contributors will need to exceed this threshold to benefit from charitable deductions. This provision is not applicable in 2025, making it potentially more advantageous to donate before the new regulations take effect.
Taxpayers in the 37% tax bracket should also note that in 2026, charitable contributions will only offset taxable income at a 35% rate. This change means that high-income donors may find it beneficial to make larger charitable contributions in 2025 to maximize the tax benefits associated with their donations.
Strategies for Maximizing Charitable Contributions
For those planning significant charitable gifts, several strategies may help optimize tax benefits. One option is to consider a Donor Advised Fund (DAF). By contributing to a DAF in 2025, donors can take advantage of the current tax rules while still directing funds to charities in subsequent years. This allows donors to bundle contributions and receive the full deduction under more favorable conditions.
Another effective strategy involves utilizing Qualified Charitable Distributions (QCD). For individuals aged 70 1/2 and older, up to $108,000 can be transferred annually from an IRA to a charity without increasing taxable income. For married couples, this limit doubles to $216,000. QCDs count toward required minimum distributions and do not impact gross income, thereby maintaining the taxpayer’s effective tax rate and avoiding additional costs related to Social Security and Medicare.
Additionally, the concept of “bunching” donations can be beneficial. By consolidating multiple years of charitable contributions into one year, taxpayers can surpass the 0.5% threshold more easily. For instance, if an individual with an AGI of $200,000 donates $10,000 in 2026, only $9,000 would be deductible due to the new limitation. However, if a larger donation is made in a single year, the tax benefits can be maximized significantly.
As the season of giving approaches, it is essential for taxpayers to remain informed about these changes to maximize their charitable contributions effectively. Engaging in thoughtful planning not only benefits the causes supported but can also enhance one’s financial situation as 2025 comes to a close.
For more insights, contact Teresa J. Rhyne, an attorney specializing in estate planning and trust administration, at [email protected].