As the year winds down, many people are gearing up for the holiday season and thinking about giving. However, before you start donating, it’s crucial to understand some upcoming changes in the tax laws that could influence how much you can benefit from your charitable contributions.
Significant modifications to the charity tax deduction are on the horizon, thanks to new policies introduced during President Trump’s administration. Starting in 2026, there will be adjustments that impact both those who itemize their deductions and those who don’t. Depending on your situation, experts have varying opinions on how best to approach your charitable giving in 2024 and beyond.
For those who do itemize, the advice is pretty clear: it might be best to give generously this year. On the flip side, non-itemizers could benefit from waiting until 2026 to make their donations to maximize their deductions.
Jane Ditelberg, a senior tax planning official at Northern Trust Institute, mentions that this topic comes up frequently in discussions with clients. She emphasizes the unique nuances in tax regulations about charitable giving.
What Changes for Itemizers?
Beginning in 2026, two main changes will affect itemizers:
- 0.5% AGI Floor: Only contributions that exceed 0.5% of a taxpayer’s adjusted gross income (AGI) will be eligible for deduction. For instance, if your AGI is $200,000, your first $1,000 donation won’t count as deductible.
- 35% Deduction Cap: For those in the top 37% tax bracket, tax benefits from itemized deductions will be capped at 35%. This means if a high-income person donates $10,000, they’d only see a $3,500 tax break instead of $3,700 under current laws.
What Changes for Non-Itemizers?
Approximately 90% of those who opt for the standard deduction will soon have the ability to claim tax deductions for their charitable donations. According to IRS data:
- Non-itemizers can deduct cash contributions of up to $1,000 for single filers and $2,000 for married couples filing together.
Keep in mind, only cash donations are deductible, and there’s no yearly adjustment for inflation.
During the COVID-19 pandemic, the tax code briefly allowed a $300 deduction for individual non-itemizers and $600 for joint filers. This modest incentive led to a significant uptick in philanthropy, with many new taxpayers claiming the deduction in 2020, ultimately raising around $11 billion for charities.
Timing Your Donations for Maximum Benefit
For itemizers, the strategy seems to be about giving more this year to avoid the new threshold in 2026. This year, donors can claim deductions for the full amount they contribute without the 0.5% limitation.
Wealthy donors might consider consolidating their contributions into two years to navigate the upcoming cap on their deductions, given the shift from a 37% to a 35% tax advantage.
For example, if a high-income filer with an AGI of $1 million donates $20,000:
- In 2026: Only $15,000 will be eligible for the deduction due to the floor, yielding a tax benefit of $5,250.
- In 2025: The full $20,000 donation would benefit from the higher 37% rate, providing a $7,400 tax reduction.
On the other hand, non-itemizers might want to hold off and plan their donations for 2026 to ensure they benefit from the new deductions available to them.
Accelerating Giving for Itemizers in 2025
Beyond just writing a single hefty check, tax professionals suggest a few different avenues for itemizers to consider:
- Donor-Advised Fund (DAF): This allows contributions of any amount to a DAF, offering an immediate tax deduction while providing flexibility for future giving. It’s a smart move for those hesitant to donate large sums all at once.
- Private Foundation: Creating a private foundation gives donors full control over their charitable initiatives, although it generally entails higher setup and operational costs.
- Declutter and Donate: It’s worth noting that donations aren’t limited to cash; you can also give away items or property. Cleaning out your space can be cathartic, whether you have items lying around or are dealing with family estates.
