Pennsylvania CPA Journal
The One Big Beautiful Bill Act changed many provisions of the Internal Revenue Code as it relates to charitable deduction planning. The intersection of charitable giving and tax planning has never been more important as numerous provisions may impact the timing and other considerations of charitable giving.
Clients’ charitable planning often has a mix of personal and value-oriented motivations in addition to tax purposes. On July 4, 2025, the signing of federal H.R. 1 (the One Big Beautiful Bill Act, or OBBBA) changed many provisions of the Internal Revenue Code as it relates to charitable planning. Advisers should inform clients of the effective dates and effects of the revised provisions, while also being aware that tax planning may play only a small role in a client’s desire to give charitably.
Thus, advisers should engage in thoughtful and intentional conversations with clients regarding the intersection of charitable and tax planning.
OBBBA and Charitable Planning
The OBBBA impacts both clients who itemize deductions and those who take the standard deductions. Beginning in 2026, all taxpayers who do not itemize can deduct up to $1,000 (for those filing as single) or $2,000 (for married couples filing jointly) for cash gifts made directly to qualified operating charities. Transfers to donor-advised funds (DAFs), however, are excluded from this deductible amount. The caps for this deduction will be adjusted with inflation in successive years.
Also beginning in 2026, taxpayers in the highest federal income tax bracket of 37% will have the value of their itemized charitable deduction benefits capped as if they were subject to a 35% income tax bracket. For example, if a taxpayer in the 37% bracket were to deduct $20,000 of charitable donations, such a taxpayer would not receive the full $7,400 (37% multiplied by $20,000) in tax savings; instead, the taxpayer would reduce his tax liability by only $7,000 (35% multiplied by $20,000).
However, starting in 2026, itemized charitable deductions will only apply if a taxpayer’s total charitable donations exceed 0.5% of such taxpayer’s adjusted gross income (AGI). For example, if a taxpayer’s AGI is $250,000 in 2026, only charitable gifts in excess of $1,250 will be deductible.
If this discourages some charitable giving because of the reduced impact of such itemized deductions, advisers should share in their tax plan that other itemized deductions changed too, such as the higher state and local tax (SALT) deduction cap (subject to certain modified AGI threshold phase-outs). This may lead some taxpayers to desire itemizing deductions in certain years according to a tax plan.
It is also important to note that, under the OBBBA, the federal income tax brackets under the Tax Cuts and Jobs Act of 2017 become permanent, providing some level of predictability when tax planning. In addition, for the 2025 tax year, the standard deduction increases to $15,750 (for those filing as single) and $31,500 (for married couples filing jointly). This increase may mean fewer taxpayers choose to itemize. For charitable planning purposes, it may mean some will choose to itemize in a given tax year and “bunch” their charitable gifts into that tax year and take the maximum tax advantage of such giving.
The ability for a taxpayer to deduct cash gifts to public charities of up to 60% of such taxpayer’s AGI was also made permanent under the OBBBA. This higher limit applies to public charities and DAFs, but cash donations to private foundations remain capped at 30% of a taxpayer’s AGI.
It is worth noting that, starting in 2026, the OBBBA increases the federal estate and gift tax exemption to $15 million per individual (or $30 million for married couples with appropriate planning), indexed annually for inflation.
While this may mean fewer decedents’ estates are subject to federal estate tax at death, those residing in a state with an estate or inheritance tax (like Pennsylvania) may continue to incorporate charitable giving through their wills, revocable living trusts, or beneficiary designation forms for qualified retirement plan benefits.
Intentional Charitable Planning
After coordinating with their advisers, clients may wish to adjust their charitable planning in 2025 and beyond.
For example, starting in 2026, taxpayers may wish to determine which charitable organizations they will contribute to directly to take advantage of the charitable deduction for all taxpayers. They may also wish to determine whether their employer will match these charitable donations.
Taxpayers in the highest income tax bracket who itemize should be aware of the cap on their charitable deductible amounts in 2026 and beyond. As mentioned earlier, a taxpayer who makes a $20,000 charitable gift in 2026 and under the new cap the tax savings would be limited to only $7,000 may want to choose to “front-load” charitable gifts by Dec. 31, 2025, to use the 37% deduction value before the cap takes effect. Any unused deduction amounts rolled over to 2026 and beyond will be subject to the 35% cap.
Taxpayers who are concerned about the 0.5% AGI floor for itemized charitable deductions may wish to proceed in a few ways.
They could similarly front-load charitable gifts by Dec. 31, 2025, or they could “bunch” charitable gifts for future tax years, where a taxpayer combines several years of charitable gifts into a single tax year to exceed the AGI floor. Bunching charitable gifts by making a larger contribution to a DAF, private family foundation, or charitable split interest trust – including a charitable remainder trust or charitable lead trust – may be optimal vehicles. These clients may also make such charitable gifts in years where their AGI is lower to exceed the AGI floor in a more impactful way.
For example, in 2026, if a taxpayer’s AGI is only $100,000, instead of $250,000, as detailed above, the taxpayer’s charitable gifts need only exceed $500 to be deductible.
Finally, minimizing a client’s AGI through the donation of appreciated stock may serve multiple tax purposes for the taxpayer.
Taxpayers may also need help with planning for the acceleration or deferral of their taxable income (which influences the calculation of AGI for a given tax year) coupled with the decision to make certain charitable donations.
In addition, taxpayers who are age 70.5 and above, and particularly those who are age 73 and above, may wish to make qualified charitable distributions from their qualified Individual Retirement Arrangement (IRA) accounts, up to $108,000 (for those filing as single) and $216,000 (for married couples filing jointly), adjusted annually for inflation, to reduce their AGI for a given tax year.
The various decisions regarding reportable income, deductible charitable donations, and claiming other itemized deductions make it essential that clients discuss these issues with their tax, estate planning, and financial advisers now and in the future.
Next Steps
The intersection of charitable giving and tax planning has never been more important as numerous provisions of the OBBBA may impact the timing and other considerations of charitable giving. Advisers should collaborate to inform clients of the tax provisions that changed and those that remained the same, while discussing clients’ future charitable giving goals and income tax liabilities.
Charitable vehicles, such as DAFs, private foundations, and charitable split interest trusts, as well as direct charitable giving, remain important discussion points for clients and their advisers to fulfill the clients’ charitable intentions.
Brian M. Balduzzi, JD, LLM (Taxation), IPA, is an attorney with Faegre Drinker Biddle & Reath LLP in Philadelphia and is a member of the Pennsylvania CPA Journal Editorial Board. He can be reached at brian.balduzzi@faegredrinker.com.