‘Tis the season: 2025 charitable contribution deductions

In 2025 and 2026, the One Big Beautiful Bill Act (OBBBA) changed the landscape of philanthropy for our clients, especially for those in higher tax brackets. A proactive tax advisor may wish to advise their clients to time charitable contributions before year end to maximize their deductibility under the new laws. There are now deduction opportunities available to all taxpayers regardless of whether they itemize deductions.

The Tax Cuts and Jobs Act of 2017 allowed itemizers to deduct cash charitable contributions up to 60% of their AGI; the OBBBA made that provision permanent in the tax law.

$1,000 charitable deduction for standard deduction taxpayers

Similar to the $300 charitable contribution deduction for non-itemizers in previous years, this deduction that begins in tax year 2026 allows taxpayers who take the standard deduction to write off up to $1,000 of charitable contributions ($2,000 for married filing jointly).

Many taxpayers who do not itemize do not keep a close record of their charitable contributions, so it may be worth a year-end check in to encourage them to work on their recordkeeping prior to the tax season, as well as to consider year-end contributions to get up to the charitable contribution limit.

As in previous years, donations under $250 do not need a formal receipt, but do require some kind of record such as a bank or credit card statement. Donations of $250 or more require a written acknowledgement from the charity. Unlike the previous $300 deduction, this new deduction is not scheduled to sunset.

Coming soon: new deduction for donations to fund scholarships

Starting in tax year 2027, all taxpayers, regardless of itemization status, can receive a credit for up to $1,700 ($3,400 for married filing jointly) to organizations granting private or religious school K-12 scholarships. This is a credit separate from other charitable contribution deductions and is not subject to the same limitations.

Itemized deduction ceiling on the 37% tax bracket

For couples filing jointly with $768,701 or more of taxable income, itemized deductions are now capped at 35% for tax year 2026. For taxpayers who fall into these higher income brackets, it is advisable to decrease income below the 37% bracket insofar as possible, and to accelerate their 2025 contributions to maximize their deductibility.

Taxpayers below the 37% bracket may want to take advantage of bunching contributions by donating their usual December 2025 gifts in January 2026 to double up their charitable giving in tax year 2026 and maximize their itemized deduction potential. 

Itemized deduction floor on all taxpayers

Starting in tax year 2026, itemized charitable deductions will only be allowed if charitable contributions exceed 0.5% of the taxpayer’s AGI. This is another reason for itemizers to consider bunching deductions to ensure their maximum charitable contribution deduction is available.

Donor-Advised Funds: immediate benefit with long-term charitable impact

A Donor-Advised Fund (DAF) allows the taxpayer to contribute cash, stock, and other assets to a managed investment fund where the funds grow tax-free to benefit charities designated by the taxpayer. The funds are donated by the taxpayer and deductible in the year of donation, then managed/distributed by the fund to the charities of choice. In the case of a donation of appreciated stock, the taxpayer can deduct the fair-market value and the charity receives a tax-free gift of stock without having to pay capital gains on the future appreciation.

Taxpayers who donate to a DAF are not able to use these contributions towards the $1,000 charitable contribution deduction available to those who take the standard deduction.

Taxpayers 70.5 and older can donate Qualified Charitable Distributions (QCDs) from IRA funds

An individual taxpayer who is over 70.5 can designate up to $108,000 of their IRA distributions to go directly to charity. These QCDs are not subject to itemized deduction rules and limitations and can be a way for older taxpayers to reduce their taxable income while also making a charitable impact. 

Estate Planning: A DAF Opportunity

For high-net-worth clients who are working on their estate planning, it is worth considering donating their gifts to DAFs now which gives them an immediate tax benefit and allows them to reduce their taxable estate below the new estate and gift tax threshold of $15 million per individual ($30 million per couple).

Be philanthropic, but maximize tax savings

Because of the new limitations, higher net worth clients should be looking at accelerating their year-end charitable contributions to ensure that they are not caught by surprise in tax year 2026, as well as planning for bunched contributions in January 2026 to help them clear the 0.5% AGI threshold. 

A robust charitable donation strategy may involve gifts of appreciated stock which help the taxpayer to avoid capital gains tax on these assets. 

For many of our clients, they will continue to donate to charity regardless of the tax impacts as philanthropy is an important part of their values and legacy. As tax planners and advisors, we have the opportunity to help these clients make a difference in their community while helping them maximize their deductions so that their dollars can stretch further.