Giving to Charity? Start Now!

By Russell W. Hall, CFP®, CPWA®

It feels like every year we encourage clients to start planning their year-end giving earlier and earlier. This year is no exception, and now there’s another big reason to start sooner: a new charitable deduction floor introduced in the One Big Beautiful Bill Act.

Congress Giveth and Taketh

We previously covered the OBBB Act in detail, but only briefly touched on charitable deductions. As with most tax law changes, there’s good news and bad news.

The good news is for taxpayers who file the standard deduction, which is now the majority of the country. Starting in 2026, they can deduct charitable contributions of up to $1,000 for single filers and $2,000 for married filing jointly.

The contributions have to be cash (as opposed to appreciated assets or in-kind donations) given to a 501(c)(3) public charity, so private foundations and donor-advised funds (DAFs) don’t count. The deduction is also “above the line,” so it reduces adjusted gross income (AGI), which could be helpful to lower taxation on other items (including our old friend IRMAA).   

The bad news is for taxpayers who itemize their charitable deductions. Starting in 2026, those donations are subject to a 0.5% floor. Also, those in the highest tax bracket of 37% have their deductions effectively capped at 35% through a complicated formula.

Floor Is Lava

This new charitable contribution floor works similarly to the existing medical expense deduction floor, in that only the amount of contributions greater than 0.5% of your AGI will be deductible. Here are some simplified examples:

  • AGI = $240,000 (22% federal tax bracket)

  • Charitable donations = $10,000

  • Less 0.5% of AGI = ($1,200)

  • Deductible amount = $8,800

For an individual with much higher income:

  • AGI = $900,000 (37% federal tax bracket)

  • Charitable donations = $90,000

  • Less 0.5% of AGI = ($4,500)

  • Deductible amount = $85,500

The actual deduction is then further limited down to 35%, since the taxpayer is in the 37% bracket.

Given these changes, what’s the best course of action? There’s no silver bullet, but existing donation options that we’ve touched on in other articles will be even more useful going forward, particularly DAFs and qualified charitable contributions (QCDs).

DAFs

Donor-advised funds are set up as public charities to receive donations and give an immediate tax deduction, but the actual gifts to each charity don’t have to be made all at once. Instead, the donor can “advise” (instruct) the fund to donate to the 501(c)(3) charity of their choice whenever they want.

You get only one tax deduction at the initial donation, but this strategy lets you bunch several years’ worth of donations into one year and still spread out the actual gifts over time. There is no annual requirement that you give away a certain amount or percentage from the DAF.

If you itemize your charitable donations or would like to, you could utilize a DAF to donate an amount of appreciated securities or cash equal to what you would have given over five years. If you do that by December 31, 2025, you’ll avoid the new 0.5% floor—with a caveat.

Your total deductible giving to public charities is limited to 60% of your AGI for cash gifts and 30% for appreciated securities (there are other limits for different types of donations, but those are the most common). If your DAF donation for 2025 exceeded those percentages, the excess can be carried forward for five years. However, there is currently uncertainty around whether the new 0.5% floor will affect pre-2026 carry-forward deductions, so keep that in mind.

QCDs

In a way, qualified charitable distributions are even better since they will never be subject to the new floor.

If you’re over 70 ½ and have an IRA or inherited IRA, you can currently give up to $108,000 per year from that account directly to charity. You don’t get to deduct those donations, but since the withdrawals never touch your tax return, your income is lower. For most people, that’s even better than itemizing charitable deductions, especially with the tax law changes.

QCDs can be a great way to give in a tax-advantaged manner, not only reducing AGI but also potentially reducing future required minimum distribution amounts.

The Time to Plan …

If you think the new floor will affect your deductions in 2026, don’t let the rest of this year slip away without at least considering one of these options. We’re available to help clients think through strategies, and if you’re not a client, you can schedule a 15-minute discovery call with a fee-only financial advisor.

Carl Lachman, MBA, CFP®