Don’t Let the New Tax Rules Undermine Your Charitable Giving
With the end of the year approaching, now is a good time to review any charitable contributions you're planning to make before December 31.
Several changes to the tax rules took effect at the beginning of 2026. If you regularly support charitable organizations, particularly with larger gifts, those changes could affect the tax benefits you receive.
For many of our clients, charitable giving is about supporting organizations they believe in, helping their communities, and sharing their financial success with others. The tax deduction is certainly welcome, but it's rarely the primary motivation.
Still, if you're planning to give, we want to make sure you're doing it thoughtfully. A few decisions made before year-end could make a meaningful difference.
Remember the New Charitable Deduction Floor
One of the biggest changes this year affects taxpayers who itemize their deductions.
Beginning in 2026, charitable contributions are generally deductible only to the extent that they exceed 0.5% of your adjusted gross income, or AGI.
Suppose you and your spouse have $400,000 in adjusted gross income and contribute $10,000 to charity. Under the new rules, the first $2,000 of your contributions wouldn't qualify for an itemized deduction. That leaves $8,000 potentially deductible, assuming you meet the other requirements.
For a household with $1 million in adjusted gross income, that initial hurdle increases to $5,000.
This doesn't mean you lose $2,000 or $5,000 in actual tax savings. It means you lose that amount in deductions, and the resulting tax impact depends on your tax bracket.
For families who make substantial charitable gifts every year, however, it's a change worth understanding.
Higher-Income Households Face an Additional Limitation
Taxpayers in the highest federal income tax bracket have another rule to consider.
Beginning this year, the tax benefit of itemized deductions is generally limited to 35% for taxpayers in the 37% bracket. This is accomplished through an additional reduction in their allowable itemized deductions.
When combined with the new charitable deduction floor, this can produce a surprising result. A family with considerably less income may receive a larger tax benefit from the same charitable contribution.
Consider two married couples who each donate $10,000.
The first couple has $150,000 in adjusted gross income and is in the 22% federal tax bracket. Their charitable deduction is reduced by $750 under the new floor, leaving $9,250 potentially deductible. Assuming they itemize and can use the full deduction, their federal tax savings would be approximately $2,035.
The second couple has $1 million in adjusted gross income and is in the 37% bracket. Their charitable deduction is reduced by $5,000. After accounting for the additional limitation on itemized deductions, their federal tax savings would be approximately $1,750.
Despite being in a substantially higher tax bracket, the second couple receives a smaller tax benefit from the same $10,000 gift.
These examples are simplified, and actual results depend on your overall tax situation. But they illustrate why it's worth reviewing the amount and timing of your charitable contributions rather than assuming the deduction will work the same way it did last year.
Would Combining Several Years of Gifts Make Sense?
If you make charitable contributions every year, one strategy to consider before December 31 is combining several years of donations into a single tax year. This is commonly called bunching.
Let's say your adjusted gross income is $600,000 and you typically donate $20,000 annually. Under the new rules, the first $3,000 of your charitable contributions wouldn't qualify for an itemized deduction each year.
Over three years, you would donate $60,000 but potentially lose $9,000 in deductions because the 0.5% floor applies annually.
If you instead contribute the entire $60,000 in one year, the $3,000 floor applies only once. That could leave $57,000 deductible rather than $51,000 over the three-year period, assuming your income remains the same and you can use the deductions.
At a 35% marginal tax rate, that's a potential $2,100 difference in federal tax savings.
Bunching isn't appropriate for everyone, and charitable deduction limits still apply. But if you were already planning to make substantial gifts over the next several years, it's worth discussing whether making a larger contribution before year-end would be beneficial.
You Don't Have to Give It All Away Immediately
One of the reasons we like donor-advised funds for certain clients is that they allow you to separate the timing of your charitable contribution from the timing of the grants you make to individual charities.
Suppose you typically give $20,000 each year to several organizations. You could contribute $60,000 to a donor-advised fund before December 31, potentially qualify for a deduction this year, and recommend grants to those organizations over the next three years.
Your favorite charities can continue receiving their usual annual support, while you may benefit from combining several years of contributions into one tax year.
The assets in the fund can also be invested, giving them an opportunity to grow tax-free while they await distribution.
A donor-advised fund isn't appropriate for every situation. Contributions are irrevocable, the sponsoring organization has legal control over the assets, and fees may apply. But for families who give consistently and want flexibility, it can be a useful planning tool.
Consider Giving Appreciated Investments Instead of Cash
Before writing a large check to charity, take a look at the investments you hold in taxable accounts.
If you own stocks or funds that have appreciated substantially, donating those investments directly to a qualifying charity or donor-advised fund may be more tax-efficient than selling them and donating the proceeds.
For example, suppose you own shares worth $50,000 that you originally purchased for $15,000.
Selling the shares could trigger capital gains taxes on the $35,000 gain. Donating eligible, long-term appreciated shares directly to charity generally allows you to avoid realizing that gain. You may also qualify for a charitable deduction based on the fair market value of the shares, subject to the applicable limits and the new charitable deduction floor.
This can be particularly attractive if you're looking to reduce a concentrated stock position or rebalance your portfolio.
Timing matters, especially at year-end. If you're considering a gift of securities, allow enough time for the transfer to be completed and coordinate with your advisor before selling any shares.
If You're Over 70½, Don't Forget About Qualified Charitable Distributions
For clients who are at least age 70½, a qualified charitable distribution, or QCD, may be one of the most effective ways to make a charitable gift.
A QCD allows you to transfer money directly from an eligible IRA to a qualifying charity. When handled correctly, the distribution is generally excluded from your taxable income.
If you're required to take minimum distributions from your IRA, a QCD can satisfy all or part of that requirement without increasing your adjusted gross income.
That's especially useful under the new rules because QCDs aren't subject to the 0.5% charitable deduction floor or the additional limitation on itemized deductions for taxpayers in the highest bracket.
Keeping the distribution out of your adjusted gross income may also help manage other retirement-related costs, including income-related Medicare premiums.
There are a few important requirements. You can't claim a separate charitable deduction for the same gift, and donor-advised funds generally aren't eligible recipients. The money must also be transferred correctly.
If you normally write checks to charity and then take your required minimum distribution separately, it may be worth considering whether a QCD would be a better approach.
There's a New Deduction If You Don't Itemize
There's also a change worth remembering for taxpayers who take the standard deduction.
Beginning in 2026, eligible taxpayers who don't itemize can deduct up to $1,000 in qualifying cash charitable contributions. Married couples filing jointly can deduct up to $2,000.
This deduction isn't subject to the new 0.5% floor.
Not every charitable contribution qualifies, and gifts to donor-advised funds aren't eligible. But for households that previously received no federal tax benefit from their charitable giving, this is a welcome change.
Make Your Year-End Giving Intentional
If you're planning to make charitable contributions before December 31, now is the time to review your options.
For some clients, that may mean combining several years of gifts into a donor-advised fund. For others, donating appreciated investments or making qualified charitable distributions directly from an IRA may be more effective. And for those who take the standard deduction, the new deduction for qualifying cash gifts is worth keeping in mind.
We also want to make sure that your generosity fits comfortably within your broader financial plan. Supporting the people and organizations you care about is one of the meaningful things your wealth can allow you to do. The goal is to make those gifts while maintaining confidence in your own financial future.
If you're considering a substantial charitable contribution before year-end, let's review the strategy before you complete the gift. Coordinating with your tax professional can help ensure that the contribution is structured appropriately and that you understand its tax implications.
To discuss your year-end charitable giving or other financial planning opportunities, schedule a complimentary 15-minute call.
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This material was written in collaboration with artificial intelligence (ChatGPT) and derived from sources believed to be correct.
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