Signed into law on July 4, 2025, the One Big Beautiful Bill Act (OBBBA) introduces sweeping changes to the U.S. tax code, with significant implications for charitable giving. Building on the 2017 Tax Cuts and Jobs Act (TCJA), the OBBBA aims to broaden participation in philanthropy while recalibrating the tax benefits for high-income donors and corporations. These changes take effect beginning with the 2026 tax year and are poised to reshape how individuals and businesses approach charitable contributions.
Changes for Individual Donors
Above-the-Line Deduction for Non-Itemizers
Starting in 2026, taxpayers who do not itemize can deduct up to $1,000 (single filers) or $2,000 (married couples filing jointly) in cash donations to qualified charities—excluding donor-advised funds and private non-operating foundations. This change is expected to encourage broader participation in charitable giving, especially among middle-income households who typically take the standard deduction.
Cap on Deduction Value for High-Income Itemizers
For those in the top 37% tax bracket, the value of itemized charitable deductions will be capped at 35% of the donation amount. For example, a $1,000 donation will yield $350 instead of $370 tax saving, exclusive of state tax saving. Consequently, high-income donors may consider accelerating their charitable contributions to 2025 to optimize their tax deductions prior to the implementation of the new cap.
0.5% AGI Floor for Itemized Deductions
Itemizers can only deduct charitable contributions that exceed 0.5% of their adjusted gross income (AGI). For instance, a taxpayer with a $200,000 AGI must donate more than $1,000 to begin claiming deductions. This change may discourage smaller donations from itemizers unless it is strategically bundled.
Permanent 60% AGI Limit for Cash Gifts
The OBBBA makes permanent the ability to deduct up to 60% of AGI for cash contributions to public charities, preserving a generous ceiling for high-impact giving.
Changes for Corporate Donors
1% Income Floor for Deductibility
Corporations are required to allocate a minimum of 1% of their taxable income to be eligible for charitable deductions. Contributions below this threshold are not immediately deductible but may be carried forward under strict conditions. This means corporations must now navigate a narrower window—between the 1% floor and 10% ceiling—to optimize their charitable giving strategies. Here is an example of the new rules.
Consider a corporation with $1,000,000 in taxable income:
- Current law (2025): A donation of $9,000 would be fully deductible, as there is no floor.
- New rules (2026):
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- Donation of $9,000: Since the floor is $10,000 (1% of $1,000,000), this donation is not deductible.
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- Donation of $90,000: The deductible amount would be $80,000 ($90,000 – $10,000 floor). The $10,000 portion is permanently lost and cannot be carried forward because the total contributions did not exceed the 10% ceiling.
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- Donation of $120,000: The deductible amount is capped at $100,000 (10% of $1,000,000). The corporation can carry forward a total of $20,000 to be used in the next five (5) years ($10,000 from the floor and $10,000 from exceeding the ceiling).
10% Deduction Ceiling Maintained
The 10% cap of taxable income for corporate charitable deductions remains unchanged, preserving the upper limit while introducing a new minimum threshold.
New Incentives and Credits
Scholarship Granting Organization (SGO) Tax Credit
Beginning in 2027, individuals can claim a federal tax credit of up to $1,700 for donations to SGOs that support K–12 private education. Unlike deductions, credits reduce tax liability dollar-for-dollar, which may incentivize targeted giving to educational causes, especially among donors who do not itemize.
Strategic Planning Recommendations
To adapt to the new landscape, donors—both individual and corporate—should consider the following:
- Accelerating donations before 2026 to avoid the new floors and caps.
- Utilizing donor-advised funds (DAFs) for flexibility and immediate deductions.
- Bunching contributions to exceed the standard deduction threshold in select years.
- Donating appreciated assets to avoid capital gains taxes.
- Making Qualified Charitable Distributions (QCDs) from IRAs for donors aged 70+ or older.
How Can Our Unique Perspectives Assist You?
MJ’s Tax Services team provides tailored support to help individuals and businesses navigate the new charitable giving rules under the OBBBA. We offer strategic planning to maximize deductions, ensure IRS compliance, and align giving with long-term financial goals. Our advisors understand both federal and state-level nuances, helping you make informed, tax-efficient decisions. By leveraging MJ’s capabilities, your generosity is transformed into an effective financial strategy.
