We know all too well that tax law is constantly changing. The One Big Beautiful Bill Act (OBBBA) was signed into law on July 4, 2025. We want you to be ready for it. This article focuses on planning opportunities around the changes to charitable deductions.
Itemized deductions can be a labyrinth of limitations. For charitable deductions, we have pre-existing limitations based on adjusted gross income (AGI) and type of organization receiving the donation. For example, cash donations to a public charity cannot exceed 60% of AGI for the year. Whereas appreciated securities to a public charity cannot exceed 30% of AGI.
We are not out of the woods after those limitations. Next, starting in tax year 2026, charitable deductions are reduced by .5% of AGI. Finally, we have a new overall itemized deductions limitation for taxpayers in the highest tax bracket, also going into effect in 2026. Under OBBBA, itemized deductions will be reduced by 2/37 of the lesser of
- the amount of the deductions or
- the taxable income (before itemized deductions) that exceeds the dollar amount at which the 37% rate begins ($768,701 married filing joint/$609,351 single for 2026)
The 2/37th limitation applies regardless of income level. Because of limitations on other common deductions (e.g., state and local taxes cap), it will be rare when (b) applies rather than (a). Because of the limitations starting in 2026, taxpayers may want to lump multiple years’ worth of charitable donations into 2025 to maximize the tax benefit of those deductions.
For example, Betty and James wish to donate $50,000 this year and next. Their AGI is $1,000,000. They deduct $10,000 of state and local taxes and have no mortgage or other deductions. By donating $100,000 in 2025 instead of $50,000 in 2025 and 2026, they can save about $11,000. (Savings for all examples are federal tax only and before considering any lost income on the frontloaded deductions.)
If Betty and James wish to contribute $100,000 for 2025 and 2026 and their AGI is $4,000,000, with all else the same as the original example, they will save approximately $17,000 by frontloading the 2026 deductions into 2025.
The savings increase as deductions increase and as more years’ worth of deductions are made in 2025. Taxpayers can use a donor advised fund to get a charitable deduction without giving the donation to the end game charity in the first year.
Not considered in the examples above is whether Betty and James are eligible to make charitable donations directly from their IRAs as qualified minimum distributions or if they can make the donations using appreciated securities. Both of those options should also be evaluated in their charitable planning.
While taxpayers who regularly itemize may not be happy about the changes, taxpayers who make some charitable donations but not enough to itemize may be pleased with a change that benefits them. Long story short, taxpayers taking the standard deduction can also take a deduction for charitable donations up to $2,000 (married filing joint)/$1,000 (single).
As you can see, there are many components of charitable planning. Tax planning is a delicate balance requiring careful consideration based on your situation, and no recommendation will apply to every taxpayer. As you review your charitable giving plan for the remainder of 2025 and after, please reach out to your KWC advisor so we may guide you to the most tax advantageous plan for you.