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The One Big Beautiful Bill contains certain disincentives to charitable gifts. There are two primary considerations that may encourage you to make your gifts before year-end:
- There is a floor of 0.5% AGI starting in 2026. This means that individuals will only be able to claim a tax deduction to the extent that their contributions exceed 0.5% of their adjusted gross income. Corporations on the other hand will only be entitled to deduct charitable contributions that exceed 1% of their taxable income.
- There is a 35% cap limiting the benefit of itemized deductions starting in 2026, meaning itemized deductions must be reduced by 2/37 (about 5.4%) of the amount by which income exceeds the amount at which the 37% tax bracket begins.
If you don't know which charities you wish to donate to, you can "bunch" donations by setting up a charitable foundation and funding it in 2025. If you form a board of directors, then your board can decide what charities to fund in the future, but you can take the tax benefits now. A board of directors position is also a great way to set up some income for your adult children while keeping them involved in the process. A bunching strategy of making larger gifts less frequently will be particularly useful given the 0.5% AGI floor.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
