Gifts and Benefits

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Gifts And Benefits

Written by: Chelsea Hussey

Navigating charitable deductions under the new tax law

For most philanthropic people, giving to charity is its own reward. However, a tax deduction can be a welcome bonus. Last year’s One Big Beautiful Bill Act (OBBBA) introduced several significant changes to the rules governing charitable deductions. As you make charitable gifts in 2026, review these updates to see how they affect the deductibility of your donations.

Tax break for most filers

Starting this year, charitable donors who don’t itemize can still claim an “above-the-line” deduction. This tax break is for up to $1,000 per year in cash contributions to qualified nonprofits ($2,000 for married couples filing jointly). This provision benefits a growing number of taxpayers because the OBBBA significantly increased the standard deduction. For 2026, the standard deduction is $16,100 ($32,200 for joint filers), meaning fewer people will itemize. Standard deductions for taxpayers age 65 and older are even higher.

Floor for itemizers

Also starting in 2026, itemizers are subject to an annual floor on their charitable deductions. This floor is equal to 0.5% of itemizers’ adjusted gross income (AGI) — so only the charitable contributions that exceed 0.5% of AGI can be deducted. Suppose, for example, that Isabel itemizes deductions on her federal income tax return. If her AGI is $200,000, then her first $1,000 in charitable gifts is nondeductible.

Ceiling for high earners

Another provision that took effect in 2026 installs a ceiling on all itemized deductions (not just charitable deductions) for taxpayers in the top federal tax bracket. If you’re in the 37% tax bracket, this provision caps the tax benefits you enjoy on account of your itemized deductions at 35%. Say that Ned — a single filer in the 37% tax bracket with $1 million in AGI — donates $100,000 to charity. Pre-OBBBA, a $100,000 deduction would have saved Ned $37,000 in taxes. Now, however, under the charitable deduction floor, his first $5,000 in charitable gifts (0.5% x $100,000) is nondeductible, so his maximum deduction is $95,000. Plus, because of the new deduction ceiling, the benefit of a $95,000 deduction is capped at $33,250 (35% x $95,000). In other words, the OBBBA reduces the tax benefits of Ned’s charitable gifts by more than 10%.

2 ways to maximize savings

Fortunately, there are a couple of strategies available that might help you maximize the tax benefits of your charitable deductions under the new rules:

1. Bunch your donations. Bunching means concentrating two or more years’ worth of charitable gifts into one year. Suppose that Isabel from our previous example typically donates $10,000 to charity each year. The floor on itemized charitable deductions limits the amount she can deduct to $9,000 (the excess over $1,000), or $18,000 over two years. If, instead, she were to donate $20,000 every other year, she could deduct $19,000, thus increasing her deductions for the same two-year period by $1,000
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2. Make a qualified charitable distribution (QCD). If you’re age 70½ or older, a QCD allows you to transfer up to $100,000 per year — tax-free — directly from an IRA to one or more qualified public charities. Because each distribution is excluded from your income, it has the same tax impact as a charitable deduction, but there’s no need to itemize. Plus, it’s not subject to a floor or ceiling, so if Ned from our previous example had made a QCD from his IRA, he would have enjoyed the full $37,000 tax benefit from his charitable gift. On top of these benefits, QCDs count toward required minimum distributions (RMDs) from IRAs, allowing you to make at least part of your RMDs without triggering income taxes.

The SECURE 2.0 Act made QCDs even more attractive. Taxpayers are now allowed to make a one-time QCD of up to $50,000 to a charitable gift annuity or charitable remainder trust, combining the tax benefits of a QCD with a lifetime income stream. SECURE 2.0 also provided for the $100,000 and $50,000 limits to be adjusted for inflation. In 2026, those limits are $111,000 and $55,000, respectively.

Strategic giving pays off

The OBBBA has definitely added complexity to philanthropy and tax planning. But with careful preparation, it’s still possible to maximize available tax benefits. Strategies such as bunching and QCDs may help improve tax efficiency while supporting your charitable giving goals. Be sure to consult a tax professional before adopting one of these strategies.

Sidebar: Donate now, distribute later, with a DAF

So long as you itemize federal tax deductions, a donor-advised fund (DAF) enables you to deduct eligible charitable contributions now, even if the donations aren’t executed until a later date. Basically, you advise your DAF as to when and to whom the money should be distributed. DAFs can be ideal if you want to enjoy the tax benefits of charitable giving now, but you haven’t yet settled on specific charities or prefer to spread your donations over several years. Meanwhile, assets within the DAF may grow tax-free, potentially increasing the amount available for charitable gifts. DAFs also make great vehicles for implementing a bunching strategy. You can concentrate charitable deductions in specific tax years while retaining control over the timing of charitable distributions.

Just keep in mind that tax regulations require DAF sponsors to have complete control over how funds are distributed. That said, DAF sponsors will almost always follow your recommendations.

Important Disclosures

Investment advisory services offered through Planned Financial Services, LLC, dba Return on Life Wealth Partners, an SEC-registered investment adviser. Registration does not imply a certain level of skill or training.

The views expressed are current as of the date of publication and are subject to change without notice. This material is provided for informational and educational purposes only and is not intended as specific investment, tax, legal, or financial planning advice. Individuals should consult with qualified professionals regarding their specific circumstances.

Tax laws, deduction limits, and charitable giving rules are subject to change and may vary based on individual circumstances.

All investing involves risk, including the possible loss of principal.

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