Should You Prioritize Charitable Giving in 2025 or Wait Until 2026?

What’s Changing

There are three major changes to charitable contributions taking effect in 2026.

1. The 0.5% AGI Floor

Starting in 2026, taxpayers must give at least 0.5% of their adjusted gross income (AGI) before any charitable donation becomes deductible. For example, if your 2026 AGI is $100,000, the first $500 of your giving will not be deductible.

2. The 35% Itemized Deduction Cap

Under current law, itemized deductions, including charitable contributions, reduce taxable income at the marginal tax rate, up to 37%. Starting in 2026, the maximum tax benefit of an itemized deduction will be capped at 35%, even though the highest marginal tax rate is still 37%.

3. An Above-the-Line-Deduction

Deductions for charitable contributions are generally only available to taxpayers who itemize. Beginning in 2026, however, taxpayers who take the standard deduction will have access to an above-the-line-deduction of $1,000 ($2,000 if married filing jointly) for cash donations to public charities.

Who Should Prioritize Donating in 2025?

If you expect to be in the highest tax bracket in 2025 and 2026, you may benefit from making charitable donations now—before the new year.

Consider this example:

A married couple earning $3,000,000 is considering donating $100,000 before the end of year.

In 2025: That $100,000 charitable contribution would result in tax savings of $37,000.

In 2026: That $100,000 contribution would result in tax savings of only $29,750.

Compared to 2025, the tax benefit for making the same charitable contribution has dropped nearly 20%.

Here’s why:

In 2026, the 0.5% AGI floor means the first $15,000 of their contributions would be non-deductible. Additionally, they would only realize tax savings of 35% on the remaining $85,000 of contributions, despite their marginal tax rate being 37%.

Strategies to Consider

Don’t know where to start for charitable giving in 2025?  Consider a donor-advised fund (DAF). Contributions into a DAF are deductible in the year they are made while the funds may be deployed to charities at a future date (and the DAF administrator takes care of writing the checks!). Donors can even contribute appreciated stock into a DAF, eliminating capital gains tax and providing a full fair market value deduction.

Taxpayers 70½ and older can also consider donating directly from their IRA, otherwise known as a qualified charitable distribution (QCD). QCDs are excluded from taxable income, so they will not be subject to the 0.5% AGI floor or 35% itemized deduction cap, thus being just as effective in 2026 and beyond. This is also an excellent way to satisfy required minimum distributions without increasing taxable income, which may be especially valuable for those trying to qualify for the increased SALT deduction or the brand new senior deduction.

Because charitable donations are subject to various AGI limits depending on the type of property and charity, it’s a good idea to work closely with your advisor and tax team to make sure you maximize your deduction for 2025.

Who Might Benefit from Waiting Until 2026?

For the more than 90% of taxpayers who claim the standard deduction, the new above-the-line deduction in 2026 could offer meaningful tax savings.

Taxpayers who don’t itemize receive no federal tax benefit for charitable contributions made in 2025. These individuals would be wise to consider waiting until 2026 to take advantage of the above-the-line deduction.

Even taxpayers who don’t typically make charitable contributions might consider doing so in 2026. Unlike itemized deductions, above-the-line deductions reduce AGI, which is used to determine eligibility for various tax credits and deductions. With proper planning, taxpayers who take the standard deduction may be able to reduce their taxable income with charitable contributions while potentially qualifying for even more tax savings.

Putting It All Together

While there may be advantages for some high earners to make charitable contributions now, there are also opportunities ahead for taxpayers who take the standard deduction.

Ultimately, a well-thought-out charitable contribution schedule is just one of many key components of a thorough financial plan. Our team can help you evaluate your options and build a charitable giving strategy aligned with your financial goals.

This communication is for informational purposes only. The content does not purport to present a complete picture, but Focus Partners believes the information is representative of issues and needs facing some clients. This should not be construed as specific investment, tax, or legal advice. Individuals should seek advice from their wealth advisor, tax advisor, or other advisors before undertaking actions in response to the matters discussed.

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Authors:

Aarya Vajdi, CPA

Senior Tax Associate

Sean Kelly, CPA, MST, MSFP, MSM

Senior Director, Tax Services