With so many provisions tucked into the July legislation that was passed by Congress, it can be easy to get lost in all the changes to taxation. Running close to 1,000 pages, there is a lot included! This article will focus on the tax benefits of charitable giving and how some giving strategies may be changing in future years due to the new law.
The most common method of charitable giving is via cash or check. Many people will save all their receipts from these gifts over the course of the year, then tally them up at tax time and hope they equal enough to receive a tax benefit for the gifts via itemizing deductions (as opposed to taking the “freebie” standard deduction). While simple in execution, it is typically the least efficient way to give from a tax perspective. If your gifts plus other itemizable deductions (mortgage interest, medical expenses, state/local taxes) do not add up to more than the standard deduction—which will be $15,750/$31,500 for single/married joint filers in 2025—you would not receive any tax benefit for the giving throughout the year.
Another easy option for older givers is the qualified charitable distribution (QCD). As long as you are age 70.5 or above, you can make gifts via check directly from an IRA account (up to $108,000 annually in 2025, increasing to $115,000 in 2026). Giving directly from an IRA has the added benefit of reducing any required taxable distribution from the account in that year by an equivalent amount. Reducing this taxable IRA income by utilizing a QCD helps to lower your modified adjusted gross income (MAGI), which is used to calculate a host of tax-related items such as Medicare premium surcharges, eligibility for additional deductions, and more. One downside of this strategy is that the gift must go immediately to a charitable organization; QCDs are not eligible for contribution into a donor advised fund (DAF, described below).
For donors with charitable intentions looking for more flexibility, a DAF can help generate immediate tax benefit while being able to make gifts over as long a period as the donor wishes. With a DAF, givers can add as much cash or appreciated stock as they want to the account in a given year and typically receive a deduction for the fair market value of the entire gift (as long as the gift is large enough to cause itemizing deductions that year). The account can then be disbursed over time to as many qualified charities as the donor would like, in amounts as small as $50 or as large as the donor chooses. A frequent strategy is to make several years’ worth of planned giving into the DAF to ensure itemization on that year’s taxes and then using the standard deduction in the following few years as the funds are doled out to charities. There are limits to the percentage of income for the year that can be deducted as charitable gifts (30% of income for appreciated stock, 60% of income for cash).
Possibly the most wide-ranging change is the addition of a charitable giving deduction for non-itemizers beginning in 2026. Even if taking the standard deduction, single/married taxpayers will be able to deduct $1,000/$2,000 of charitable giving from their incomes. This is a way for the legislation to encourage charitable giving, even as many more people are taking the standard deduction since those amounts have been elevated through recent tax changes. For those making smaller gifts, this is an easy way to ensure you receive a tax benefit. Similar to the QCD restriction, these amounts must go to specific charities and not to a DAF account to qualify for the deduction.
For taxpayers who plan to itemize deductions, there is a new 0.5%-of-AGI floor that is being put in place for 2026 and beyond. This means that the first 0.5% of total income will not be allowed to count toward the total giving when adding up itemized deductions. A household earning $250,000, for example, and donating $10,000 per year would only be able to count $8,750 as itemizable charitable deductions, as the first $1,250 is excluded as part of this new AGI floor.
In addition to the new AGI floor, itemizers of charitable deductions will only receive a tax benefit of at most 35% starting in 2026. This means, if you are in the highest federal income tax bracket of 37%, that you will not receive the full benefit of your itemized charitable deductions, as each dollar of giving in the past would save $0.37 in taxes but will now only reduce the tax bill by $0.35.
Using a gift of multiple years of planned giving to a DAF is one main strategy to ensure you receive a tax benefit for your giving. Typically, this gift will be large enough to cause itemizing of deductions in that year. If in the highest federal income tax bracket, it would likely be more valuable to execute this strategy in 2025 before the 35% cap on deduction value comes into play next year.
As mentioned before, making QCDs from an IRA is another way to ensure some tax benefit is received from charitable inclinations. The amount donated directly to a charity can reduce your gross income for the year, which can be more tax-effective than taking a distribution from an IRA to anon-retirement account and then donating the net proceeds from that distribution.
Gifting appreciated stock instead of cash or check is another efficiency improvement for planned giving. As long as an investment asset has been held for more than a year, the owner can usually gift that asset to a charity and receive a potential deduction for the current fair value of the item, no matter what the original cost paid by the owner was. Donating stock instead of cash can have the double benefit of receiving a deduction for the entire current market value but also not having to pay any capital gains taxes on the profits earned over time from that investment. The charity can then immediately sell the asset and is not subject to any capital gains taxes due to the qualified, 501(c)(3) organization status.
While benefiting from smaller gifts may be easier starting next year with the new $1,000/$2,000 deduction available to all taxpayers, receiving tax benefits from larger gifts can take some planning and forethought to execute. With significant changes to the tax code affecting the deductibility of charitable gifts, now it is more important than ever to consider careful planning around your charitable wishes. Please contact us if you have any questions on your gifting strategy for 2025 and beyond.
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