Thinking about donating to your favorite charities? The recently passed tax legislation, known as the One Big Beautiful Bill Act (OBBBA), provides an added incentive—you can use charitable donations to reduce your tax bill even if you take the standard deduction on your income taxes. But the OBBBA limits some of the tax benefits of charitable giving for wealthy donors. Maryann Reyes, CPA, PFS, principal with the tax group at WithumSmith+Brown, PC, explains what you need to know…
The Federal government has long incentivized making charitable donations by allowing taxpayers a deduction on their federal income tax returns as long as they itemize rather than take the standard deduction. In 2017, during his first term, President Trump nearly doubled the standard tax deduction. Result: Far fewer taxpayers itemized on their tax returns and were eligible to get a tax break for giving to charity.
Good news: Starting in tax year 2026, taxpayers who take the standard deduction can claim charitable giving tax deductions for donations to qualifying 501(c)(3) public charities of up to $1,000 for single filers…or $2,000 for married couples filing jointly.
But there are some caveats…
- The deduction applies to cash donations only (not property, appreciated stock or other assets).
- The provision is not indexed for future inflation.
- Any gifts over $250 need to be supported by written acknowledgement from the charity that also states no goods or services were provided.
- Gifts made to donor-advised funds do not qualify. A donor-advised fund is held by a public charity that allows donors to make tax-deductible contributions, receive immediate tax benefits and then recommend grants to other charities at a later time.
- This universal charitable giving tax deduction will reduce your taxable income but not your adjusted gross income (AGI). This is a subtle but important distinction because many tax provisions are based on AGI such as Income-Related Monthly Adjustment Amount (IRMAA) premiums (the additional charge that individuals with higher incomes face on top of the standard Medicare Part B and Part D premiums)…the income limits for Roth IRA contributions…and the 3.8% investment-income surtax.
At the same time, the OBBBA has introduced two new limits on charitable giving tax deductions for taxpayers who do itemize…
- The tax benefits for charitable deductions are capped at 35% even for those in the top marginal tax bracket of 37%. In other words, the total value of your itemized deductions cannot reduce your tax bill by more than 35% of the amount deducted. So high-income filers donating $10,000 will receive a maximum deduction of only $3,500 instead of the current $3,700.
- Itemizers who make charitable contributions will be able to claim a tax deduction only to the extent that their contributions exceed 0.5% of their AGI. Example: If you’re a couple with an AGI of $300,000, the first $1,500 of charitable donations won’t reduce your taxable income.
Strategic Tax Moves to Consider
Donors still have several months left to make their contributions for 2025 and beyond before changes from the OBBBA kick in. Consider these strategies…
If you are likely to take the standard deduction: Hold off on smaller cash donations until 2026. That way you will benefit from the new universal deduction for non-itemizers.
If you are older and taking required minimum distributions (RMDs) from your retirement accounts: Donate by taking a qualified charitable distribution (QCD) from your traditional IRAs. Reason: These donations may save you substantially more tax than an itemized deduction for a charitable gift. Note that the QCDs do have limits—$108,000 in 2025 for eligible individuals—which could be increased in 2026. This distribution can be used to satisfy the RMD for the year as well. The transfer must be a direct transfer from the IRA to the charity…and you must be at least 70½. For more information, go to BottomLineInc.com and search for “How to Give to Charity From Your IRA (and Avoid Taxes).”
If you are a wealthy taxpayer who itemizes: Accelerate contributions—giving more in 2025 and less in subsequent years—especially if you are considering large, multiyear charitable gifts…are funding a donor-advised fund…or think you will be close to or exceed the new 0.5% AGI floor in 2026. Frontloading planned donations could preserve more of your deduction under the current, more favorable rules.
If you are wealthy taxpayer on the fence about whether to itemize: Realize that while you face deduction limits for charitable contributions, the OBBBA provides new charitable giving tax deductions, some of which apply to tax year 2025. Example: The limit itemizers can take on deductions for state and local taxes (SALT) will be increased dramatically for the tax years 2025 through 2029. The ceiling on the deduction increases from $10,000 to $40,000 in 2025 for most joint filers (from $5,000 to $20,000 for most individual filers), then increases 1% each year from 2026 to 2029.
