Anaya Nolan
Tax laws have a significant impact on charitable giving, with changes in legislation potentially increasing or reducing donations. The Tax Cuts and Jobs Act (TCJA) of 2017, for instance, made substantial modifications that discouraged charitable giving compared to previous tax laws. It raised the standard deduction, capped the state and local tax deduction, and eliminated certain itemized deductions, reducing the number of taxpayers taking deductions for charitable contributions. The One Big Beautiful Bill Act (OBBB), which came into effect in 2025, preserved some TCJA provisions while introducing new ones, such as above-the-line charitable deductions for non-itemizers, allowing them to deduct cash donations. These changes in tax laws have important implications for donors' philanthropic strategies, and understanding them is crucial for donors to maximize their impact and tax efficiency.
| Characteristics | Values |
|---|---|
| Tax laws | Tax Cuts and Jobs Act (TCJA), One Big Beautiful Bill Act (OBBB) |
| Changes to tax laws | Lowered individual income tax rates, increased standard deduction, capped state and local tax deduction at $10,000, eliminated itemized deductions, increased estate tax exemption |
| Impact on charitable giving | Reduced number of taxpayers taking deductions for charitable contributions, reduced tax incentive for giving, may have unintended consequences for charities and those in need |
| Strategies for maximizing impact and tax efficiency | Bunching donations, timing contributions, mixing cash and non-cash gifts, working with a tax professional or financial advisor |
| Deduction limits | $1,000 per year for single taxpayers, $2,000 per year for married couples filing jointly, 60% of adjusted gross income for cash gifts to public charities, 1% floor for charitable deductions for small businesses |
| Eligible organizations | State or local government, community chest, corporation, trust, foundation, religious organization, war veterans' organization, civil defense organization, fraternal society, nonprofit cemetery company, Canadian organizations with tax treaty |
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What You'll Learn
Tax incentives for charitable giving
One notable change is the increase in the standard deduction amount, which was already higher than the sum of potential itemized deductions for most taxpayers. The TCJA further increased this standard deduction, resulting in a substantial reduction in the number of taxpayers who itemize their deductions. This includes charitable contributions, as only itemizers can reduce their taxable income by the amount of their charitable donations. The OBBB has also introduced above-the-line charitable deductions for non-itemizers, allowing them to deduct cash donations to qualified charities up to certain limits.
To maximize tax benefits, taxpayers can employ strategies such as "bunching" or "grouping" charitable contributions with other itemized deductions. This involves timing donations to take the standard deduction one year and then itemizing deductions the next. For instance, a couple with significant state and local taxes and charitable contributions might decide to donate a larger amount in one year to deduct most of their charitable contributions. Additionally, taxpayers can consider establishing donor-advised funds, which act as savings accounts for charity, allowing them to contribute over time and resume their regular donation schedules.
The impact of these tax incentives extends beyond individual taxpayers. The reduction in federal support for social programs may increase demand for charitable services, creating a potential gap between community needs and charitable resources. Organizations that understand the nuanced impacts on different donor segments and develop targeted strategies will be better positioned to navigate these changes and maintain support.
While tax incentives play a role in charitable giving, it is important to recognize that the fundamental impulse to give transcends tax considerations. Taxpayers should consult with tax professionals or financial advisors to align their charitable contributions with their values and goals while maximizing tax benefits.
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Taxpayers who benefit from charitable deductions
The Tax Cuts and Jobs Act (TCJA) of 2017 made significant changes to the tax law, which affected charitable giving. The TCJA lowered individual income tax rates, thereby reducing the value of all tax deductions. It also increased the standard deduction amount, capped the state and local tax deduction, and eliminated certain itemized deductions. These changes reduced the number of taxpayers who itemize their deductions, including charitable contributions.
The One Big Beautiful Bill Act (OBBB), signed into law in 2025, introduced further changes relevant to charitable giving. The OBBB preserved some provisions of the TCJA while introducing new ones. One notable change is the above-the-line charitable deduction for non-itemizers, which allows single taxpayers to deduct up to $1,000 per year and married couples filing jointly to deduct up to $2,000 per year in cash donations to qualified charities. This change enables taxpayers who previously took the standard deduction to now benefit from charitable deductions by reducing their taxable income.
Additionally, the OBBB made permanent the rule allowing taxpayers to deduct up to 60% of their adjusted gross income (AGI) for cash gifts to public charities. However, there is a new floor for charitable deductions, where only contributions exceeding 1% of taxable income can be deducted. This change may impact small business owners, as their charitable contributions might no longer be deductible if they do not meet this threshold.
To maximize their tax benefits, taxpayers can consider strategies such as "bunching" or grouping their charitable contributions with other itemized deductions. For example, a couple with state and local taxes of $10,000 and no other itemized deductions could donate $75,000 in one year, allowing them to deduct most of their charitable contributions ($85,000) less the standard deduction. Taxpayers can also explore donor-advised funds, which act as savings accounts for charity, allowing them to contribute over time and then resume their regular donation schedule.
It is important to note that while tax incentives can influence charitable giving, the fundamental impulse to give transcends tax considerations. Taxpayers should consult with tax professionals or financial advisors to develop strategies that align with their values and goals while maximizing their tax benefits and supporting the causes they care about.
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How to maximise tax benefits
The tax laws surrounding charitable giving are complex and ever-changing, with the Tax Cuts and Jobs Act (TCJA) of 2017 and the One Big Beautiful Bill Act (OBBB) of 2025 making significant changes. Here are some ways to maximise tax benefits when making charitable contributions:
Understand the Tax Landscape
It is essential to understand the current tax laws and how they apply to your specific situation. The TCJA and OBBB have introduced changes such as increased standard deduction amounts, adjusted income tax brackets, and limits on itemized deductions, which impact the tax benefits of charitable giving. Stay informed about these changes and how they may affect your charitable giving strategies.
Bunching or Grouping Donations
One strategy to maximise tax benefits is to group or "bunch" charitable contributions with other itemised deductions. This strategy can be particularly effective if you time your charitable contributions to take the standard deduction one year and then itemise deductions the next. For example, you could double donate in December, covering both the current and the next year. This approach can help you exceed the standard deduction and maximise your tax savings.
Donor-Advised Funds
Consider establishing a donor-advised fund (DAF), which operates like a savings account for charity. You can contribute to the DAF over time and then immediately resume your regular donation schedule. While contributions to DAFs do not qualify for the standard deduction, they can provide tax benefits and flexibility in deciding when and how much to donate to specific causes.
Retirement Account Charitable Rollover
If you are aged 70 1/2 or older, you can take advantage of an individual retirement account charitable rollover. This allows you to make direct transfers of up to $100,000 per year from your IRA to qualified charities without counting these transfers as income for federal income tax purposes.
Work with Professionals
Engage with a trusted tax professional or financial advisor to tailor a charitable giving plan that aligns with your financial situation, values, and goals. They can help you navigate the complexities of tax laws and make strategic decisions to maximise your tax benefits while supporting the causes you care about.
Other Considerations
Maximising tax benefits may also involve evaluating the timing of your contributions, considering a mix of cash and non-cash gifts, and assessing whether your charitable giving meets certain thresholds or qualifications. Additionally, keep in mind that tax benefits are not the primary motivation for charitable giving, and the fundamental impulse to give often transcends tax considerations.
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The impact of tax laws on charities
The impact of tax laws on charitable giving is complex and multifaceted. Tax laws can influence the amount and frequency of donations, as well as the strategies employed by donors to maximise their tax benefits. The Tax Cuts and Jobs Act (TCJA) of 2017, for instance, made significant changes that discouraged charitable giving relative to prior tax law. It lowered individual income tax rates, reducing the value of all tax deductions, and increased the standard deduction, which led to a substantial decrease in the number of taxpayers taking a deduction for charitable contributions.
However, it's important to note that the incentive to give is not solely driven by tax considerations. People are motivated by compassion and a desire to support causes they believe in. Nevertheless, tax benefits can enhance the impact of donations. The introduction of the charitable deduction for non-itemizers in the One Big Beautiful Bill Act (OBBB) of 2025 is expected to expand participation in giving. This legislation allows single taxpayers to deduct up to $1,000 per year and married couples filing jointly to deduct up to $2,000 per year in cash donations to qualified charities.
Additionally, tax laws can influence the types of donations made. For example, the Coronavirus Tax Relief and Economic Impact Payments page offers enhanced deductions for businesses contributing food inventory for the care of those in need. This encourages businesses to donate food, which can have a significant impact on charitable organisations and the communities they serve.
While tax laws can shape the landscape of charitable giving, it is important for donors to seek professional advice to navigate the complexities of these laws and develop strategies that align with their values and goals. By understanding the interplay between tax laws and charitable giving, donors can maximise their impact while minimising their tax burden.
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Changes to tax laws in 2025
The US tax landscape is set to witness significant changes in 2025, with the passing of the One Big Beautiful Bill (OBBB) into law on July 4, 2025. This legislation makes permanent several temporary tax provisions introduced in the 2017 Tax Cuts and Jobs Act (TCJA) while introducing new tax rules, both short-term and long-term.
The OBBB retains and expands upon the larger standard deduction introduced in the TCJA. For the 2025 tax year, the standard deduction for married couples filing jointly increases to $30,000, up $800 from 2024. Heads of households will see a $600 increase to $22,500, while single taxpayers and married individuals filing separately will have a standard deduction of $15,000, a $400 increase. The exemption amount for unmarried individuals rises to $88,100, with a phase-out starting at $626,350. The bill also maintains the TCJA's lower tax brackets and income tax rates, while continuing the elimination of personal and dependent exemptions.
Additionally, the OBBB introduces a "No Tax on Tips" law, allowing workers in industries where tipping is customary to claim a dollar-for-dollar deduction for a designated amount of tip income. This benefit begins to phase out for higher-income workers, with a cap on income eligible for the deduction set at $25,000.
While most of the changes in the OBBB take effect on January 1, 2026, some are retroactive and will impact 2025 tax returns filed in 2026. These retroactive changes include adjustments to over 60 tax provisions to account for inflation, helping to prevent "bracket creep," where inflation pushes taxpayers into higher income tax brackets.
The IRS and tax professionals are preparing for these changes, and individuals and businesses will need guidance to navigate their tax liabilities under the new laws.
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Frequently asked questions
The OBBB is a major tax reform package signed into law in 2025 that preserves several key elements of the 2017 Tax Cuts and Jobs Act (TCJA) while introducing new provisions that may shape charitable giving in meaningful ways. For example, beginning with the 2026 tax year, OBBB allows non-itemizers to deduct cash donations to charity—up to $1,000 for single filers and $2,000 for married couples filing jointly.
The TCJA made major changes that discourage charitable giving relative to prior tax law. It lowered individual income tax rates, thus reducing the value of all tax deductions. It also increased the standard deduction, capped the state and local tax deduction, and eliminated other itemized deductions, significantly reducing the number of taxpayers taking a deduction for charitable contributions.
"Bunching" is a strategy that involves grouping charitable contributions with other types of itemized deductions, such as tax payments and medical expenses, to maximize tax benefits. This can be done by timing charitable contributions to take the standard deduction one year and then itemizing deductions the next.
Tax laws can incentivize charitable giving by allowing taxpayers to reduce their taxable income by the amount of their charitable contributions. However, this incentive is generally only available to itemizers, as taxpayers who take the standard deduction cannot reduce their taxable income by their charitable contributions.
When the standard deduction increases, fewer taxpayers itemize their deductions, reducing the number of taxpayers who can benefit from deducting charitable contributions. On the other hand, changes to itemized deductions, such as capping or eliminating certain deductions, can also reduce the number of taxpayers who itemize and claim deductions for charitable contributions.
