Giving Strategies to Maximize Charitable Impact and Minimize Taxes

 

Research shows that adults are more likely to give to charity if their parents also gave to charity. We encourage you to share stories of giving at your holiday table. Below are a few questions to get you started. We recommend that each person at the table be given a chance to respond to the questions:

 

• What is your earliest memory of giving?
• When is a time that someone else showed generosity to you?
• If you could solve a world problem, what would it be? 

 

Additionally, the end of the year is a great time to leverage charitable gifts for tax efficiency. In 2025, we saw the passage of the One Big Beautiful Bill Act (OBBBA), making 2025 the last year with the current tax rules for charitable donations. The OBBBA phases in important changes in deductions, starting in 2026.

 

We’ll cover these, as well as three giving strategies to maximize your charitable impact and minimize your taxes. As always, you should discuss any ideas and strategies with your tax advisor before acting.

The Impact of OBBBA

The changes below go into effect in tax year 2026. In general, high earners who itemize may benefit from donating more this year, before these changes take effect.

 

New Floor for Charitable Contributions. Individuals who itemize their charitable contributions only get a charitable deduction for giving in excess of 0.5% of their modified adjusted gross income (MAGI).

 

For example, a couple with a MAGI of $300,000 could only deduct charitable donations in excess of $1,500. In other words, starting in 2026, if this couple donated $10,000 to charity and itemized their deductions, they could only deduct $8,500.

 

This may induce some to donate more in 2025. Why? In the example above, the same couple could deduct the full $10,000 in charitable contributions from their income this tax year.

 

New Ceiling on Charitable Contributions. For individuals in the top tax bracket, the OBBBA caps the tax benefit at $0.35 for each dollar of itemized deductions, rather than today’s full $0.37 per dollar. For example, high-income filers deducting $1,000 would receive $350 in reduced taxes instead of the current $370.

 

Again, this may induce some to donate more this year to maximize their tax benefit. We’ll cover some strategies on how to do this below.

 

The Universal Charitable Deduction. This change benefits those who don’t itemize. Starting in 2026, those who take the standard deduction can also deduct their charitable contributions, with a cap of $1,000 for individuals and $2,000 for joint filers. Contributions to Donor Advised Funds or private foundations are not eligible.

 

This change is expected to have a positive effect on philanthropy overall. A similar provision during 2020 and 2021 under the CARES Act allowed for a universal charitable deduction, resulting in 90 million taxpayers claiming it in 2020-2021. That was about 60% of eligible taxpayers, compared with about 10% of households who itemized their deductions.

 

In the instance of the new OBBBA rule, if you typically take the standard deduction and donate less than the new Universal Charitable Deduction cap per year, it may benefit you to push your 2025 donations to January of 2026 and then make your usual 2026 donations later in the year. This would maximize your total deductions under the new rules, while allowing you to give the same amount to charities you care about. This is just one example of a bunching strategy.

Bunching 

Bunching is grouping charitable gifts you intend to make over a future period into a single year. The most common method is this: if you expect that the total of your itemized deductions will be less than the standard deduction for 2025 (generally $15,000 for single filers or $30,000 for married couples filing jointly), it could be tax advantageous to bunch your 2025 and 2026 charitable deductions into one year. This is particularly the case in 2025, since the new OBBBA floor and ceiling, which will be phased in for 2026, will make deductions slightly less beneficial going forward.

 

Additionally, you may choose to pair a charitable bunching strategy with a Donor Advised Fund (DAF). Since DAFs are subject to the new OBBBA floor and ceiling, this may be the year to contribute a large sum to a DAF. For example, if you typically give $10,000 a year to charity, consider gifting $20,000 into a DAF this year. Assets in a DAF grow tax-free and you can itemize your taxes in 2025, but make charitable grant distributions in 2026, 2027 and into the future.

Assets Over Cash 

Gifting highly appreciated assets rather than cash is something to consider. If you have held appreciated stock for more than a year, consider making a gift of stock rather than cash. You may generally be able to deduct the fair market value of the stock, while also avoiding the capital gains tax you would otherwise need to pay if you sold the stock outright.

A Qualified Charitable Distribution 

It may be advantageous to use a Qualified Charitable Distribution (QCD) to satisfy your IRA Required Minimum Distribution (RMD). The QCD is untouched by the new floor and ceiling on charitable contributions created by OBBBA, so it will be an especially valuable tool going forward.  

 

It works like this: any individual over the age of 70½ can direct up to $108,000 annually of their IRA to a qualified nonprofit organization. The amount donated is excluded from your taxable income, which may positively impact certain tax credits and deductions, the taxable portion of your Social Security, and your Medicare premiums. It also counts toward your RMD.

Planning Goes a Long Way

Creating a maximum charitable impact—and streamlining your tax efficiency—requires some planning. Much like when you throw a good holiday dinner, you’ll likely find the forethought and preparation that goes into it to be well worth it. 

 

If you need help getting started, or if you want to talk finances this holiday season, the Wealth Advisors at 1834 are available. Please just reach out.