Should You Give to Charity Now - or Wait Until 2026?

With Thanksgiving behind us, we now move into the December holiday rush season. This is also the time when many people make annual charitable gifts. This year, you may want to consider whether to make your charitable gifts before the end of 2025, or wait until 2026. This is due to the July passage of OBBA, the “One Big Beautiful Bill Act” which changed the tax rules for giving to charity. The impact of these changes differs depending on whether you itemize deductions or take the standard deduction on your federal income taxes.

For taxpayers who do not itemize deductions

About 90% of filers take the standard deduction and do not itemize. But beginning in 2026, taxpayers who take the standard deduction can claim an above-the-line charitable contribution deduction: up to $1,000 as a single filer and up to $2,000 if married filing jointly. Only cash donations count for the deductions, and the amounts will not be annually adjusted for inflation. These new deductions are similar to the temporary deductions during COVID, when non-itemizers could deduct up to $300 (single filers) or up to $600 (joint filers). Given this, some experts suggest that non-itemizers may want to pause until 2026 to maximize their deductions.

This is a universal deduction which makes charitable donations more accessible and appealing to more taxpayers who could not get a tax benefit for charitable giving before.

Currently, taxpayers who do not itemize receive no federal tax benefit for charitable contributions made in 2025. These individuals might consider waiting until 2026 to take advantage of the above-the-line deduction. Also, the above-the-line deductions will reduce AGI, which determines eligibility for various tax credits and deductions. Taxpayers who take the standard deduction may be able to reduce their taxable income with charitable contributions while also potentially qualifying for even more tax savings.

For taxpayers who itemize deductions

Two major changes for those who itemize deductions start in 2026.

1. Only charitable contributions that exceed 0.5% of a taxpayer's Adjusted Gross Income (AGI) will be deductible. For example, if your AGI = $200,000, the first $1,000 in charitable donations will not be tax-deductible.

2. For top earners (in the 37% tax bracket), the percentage cap lowers to 35% for the value of your deduction. This means a top earner who donates $10,000 will receive a $3,500 tax reduction instead of $3,700 under the current 2025 rate.

If you expect to be in the highest tax bracket in 2025 and 2026, you may benefit from making charitable donations in 2025. For example, a married couple with AGI = $3 million who plan to contribute $100,000 to charity:

· Tax savings in 2025: $37,000.

· Tax savings in 2026: $29,750.

The first $15,000 of their 2026 contribution will be non-deductible (0.5% of $3 Million) AND the deduction will be capped at 35% instead of 37%. Their tax deduction is reduced by $7,250 in 2026.

Charitable Giving Strategies to Consider

1. Donor-Advised Fund (DAF). Donors contribute cash, stock, or other assets to get an immediate tax benefit in the year of funding into the DAF. The contributions are tax deductible in the year they are made. The funds are invested and can grow tax-free. The donor can choose how the funds are invested and when the money goes to charities - immediately or over time (usually three to seven years). If appreciated stock is donated, there is no capital gains tax on the value of the contribution, and the taxpayer receives a full fair market value deduction.

2. Charitable bunching. A taxpayer can make several years of donations in a single tax year. For taxpayers in high tax brackets, bunching can “front-load” charitable donations into 2025 to maximize the tax benefit and avoid the floor and ceiling in 2026 and beyond. For taxpayers with more modest income, bunching can be done in 2026 to enable taking a deduction up to $1,000 (single) or $2,000 (MFJ).

3. Qualified Charitable Distribution (QCD) - Taxpayers aged 70½ and older can donate directly from their IRA using a QCD. QCDs are excluded from taxable income, and not subject to the 0.5% AGI floor or 35% itemized deduction cap. So QCDs will be as effective in 2026 and beyond. Taxpayers who must take Required Minimum Distributions (RMDs) can reduce their taxable income by using QCDs to donate to charity. Be sure to check the annual limit for QCDs which change annually.

Because charitable donations are subject to various AGI limits depending on the type of property and charity, we recommend that you collaborate closely with your advisor and tax team to make sure you maximize your deduction for 2025. Want to schedule a quick call with me? Click HERE

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Best regards,

Janet Rhodes Friedman, CFP®, CDFA®, MBA

Janet@PlanWithFPS.com

617-630-4978

Financial Planning Solutions, LLC (FPS) is a Registered Investment Advisor. Financial Planning Solutions, LLC (FPS) provides this blog for informational and educational purposes only. Nothing in this blog should be considered investment, tax, or legal advice. FPS only renders personalized advice to each client. Information herein includes opinions and source information that is believed to be reliable. However, such information may not be independently verified by FPS. Please see important disclosures link at the bottom of this page.