Background
Donating to charities has been an effective way to fulfill a taxpayer’s charitable desires while potentially reducing their tax liability. Since there is not a dollar-for-dollar tax benefit resulting from a charitable contribution, a taxpayer may not donate to simply receive a tax benefit, but if giving to a charity is within a taxpayer’s interest, carefully planning the amounts and timing of the donations may bolster tax benefits.
On July 4, 2025, the One Big Beautiful Bill Act (OB3) was enacted, including changes to the deductibility of charitable contributions. These changes are generally not taxpayer friendly; fortunately, these changes will not take effect until January 1, 2026. With this delay, planning opportunities have arisen that can be implemented before the end of calendar year 2025.
Charitable Deduction 0.5% Threshold
For tax years beginning after December 31, 2025, only charitable contributions exceeding 0.5% of an individual taxpayer’s adjusted gross income (AGI) will be deductible. For example, a taxpayer with an AGI of $1 million would only receive deductions for charitable contributions exceeding $5,000.
Insight From Forvis Mazars: There are other limitations for individual taxpayers on their charitable contributions; for example, cash contributions are limited to 60% of their AGI. Amounts exceeding these limitations can be carried forward for the next five years. Amounts limited by the 0.5% threshold generally do not carry forward unless there is also an excess charitable contribution carryforward. There may be a planning opportunity here to intentionally make excess charitable contributions so that the amount disallowed by the 0.5% threshold also carries forward into future years.
Itemized Deduction 35% Benefit Limit
Also, for tax years beginning after December 31, 2025, taxpayers who are in the top 37% income tax bracket will have the benefit of their itemized deductions (which includes charitable deductions) capped at 35%. Returning to our example of a taxpayer with $1 million of AGI and if the taxpayer made $100,000 of charitable contributions, not only would the deductible amount be limited to $95,000 due to the 0.5% threshold, but the deduction would be limited to a $33,250 benefit ($95,000 x 35%). Compare this to a pre-2026 benefit of $37,000 ($100,000 x 37%).
Additional Deduction for Non-Itemizing Taxpayers
The two prior examples dealt with taxpayers who itemize deductions. For those who take the standard deduction, a favorable tax benefit was made available to taxpayers. Again, available for tax years beginning after December 31, 2025, the OB3 provides these taxpayers with a deduction in addition to the standard deduction of up to $1,000 ($2,000 for taxpayers married filing joint) for their charitable cash contributions.
Planning Opportunities
Considering these provisions do not take effect until next year, there is a window of time before the end of 2025 to make planning decisions.
Taxpayers who normally take the standard deduction, meaning their itemized deductions (including charitable contributions) are below the standard deduction amount, may consider delaying charitable donations until after January 1, 2026 to receive the additional benefit of $1,000 ($2,000 for taxpayers married filing joint).
“Bunching” contributions has long been a strategy for taxpayers who would normally take the standard deduction to aggregate multiple years’ worth of charitable contributions into one year so that the taxpayer’s deductions exceed the standard deduction and additional benefit is realized by itemizing deductions.
For similar reasons, taxpayers who itemize deductions may consider “bunching” contributions into 2025 to avoid the 0.5% threshold and 35% cap that will be introduced in 2026. For example, an itemizing taxpayer who normally contributes $10,000 per year to a charity may consider contributing $30,000 in 2025 to cover the next three years’ worth of charitable contributions.
An effective vehicle to accomplish a “bunching” strategy is by utilizing a donor-advised fund (DAF). These funds are relatively easy and quick to set up. By donating to a DAF in 2025, say the $30,000 from our example, the taxpayer would receive a $30,000 deduction in the year donated but may advise the fund to release $10,000 to charity for each of the next three years.
Insight From Forvis Mazars: “Bunching” can be an effective strategy after 2025 to mitigate the 0.5% threshold but remember there are still caps based on a taxpayer’s AGI that can limit the amount deductible in a single year. Therefore, giving too much may also limit the value of deductions. As mentioned before, these excess contributions can be carried forward for five years, but taxpayers should be aware of these “ceilings” when implementing a “bunching” strategy.
How Forvis Mazars Can Help
Our Private Client team at Forvis Mazars is well versed in these matters and can utilize sophisticated modeling technology to help you plan your charitable giving in a tax-advantaged way. Please reach out to a member of our team right away if you’d like to discuss implementing these strategies before the end of the year.
For additional tax planning ideas, engage with the webinar, “Top 10 Tax Planning Insights From the Washington National Tax Office.”
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