Financial Planning Corner: Updated Tax Benefits of Charitable Giving

Beginning in 2026, several tax-law changes stemming from the passage of the One Big Beautiful Bill Act (OBBBA) will impact the tax benefits of charitable giving. The specific effect on your taxes will depend on your unique circumstances, as some provisions enhance the benefits while others reduce them. Below are some key features to be aware of as we start the new tax year.

Non-Itemized Deduction

Those who take the standard deduction will again receive a tax benefit for their generosity. Each filer will be able to reduce their taxable income by up to $1,000 for cash contributions. Since a temporary COVID-era provision expired after the 2021 tax year, non-itemizers have not received any tax benefit for their gifts to qualified charitable organizations. With most taxpayers now taking the standard deduction, this is likely to benefit many filers who make small charitable gifts.

0.5% Adjusted Gross Income (AGI) Floor

For those who itemize, there is now a floor of 0.5% of AGI that you must cross before receiving any deduction for charitable gifts. For example, if your AGI is $200,000, you would have to donate more than $1,000 to receive any deduction. This is similar to the 7.5% of AGI floor for the medical expense deduction.

35% Tax Benefit Cap

For those who itemize, there is a new cap of 35% on the tax benefit of charitable gifts. This means high-income donors in the 37% bracket will see reduced tax savings on their donations. This is like the previous 3% reduction (Pease limitation) that was repealed in the 2017 Tax Cuts and Jobs Act (TCJA). For example, if you are in the 37% bracket and donate $10,000, your tax deduction will be $3,500 instead of $3,700.

Permanent 60% AGI Limitation

The TCJA temporarily raised the deduction limit for cash contributions to public charities from 50% of AGI to 60%. This was set to revert to 50% in 2026; however, the 60% AGI threshold was made permanent as part of OBBBA. This will help offset the impact of some of the new itemized limitations that have taken effect this year. You can still carry forward additional gifts for up to five years, so you do not lose all the benefits of additional gifting.

Qualified Charitable Distributions (QCDs) - Still a Great Option

If you are 70.5 or older and have an IRA, QCDs are still a great way to donate to qualified charities, as those distributions are not included in your taxable income and are not subject to the 0.5% AGI floor. You can now take up to $111,000 out of your IRA tax-free via QCDs in 2026.

These tax-law changes make strategic planning an even more critical part of the gift-giving process going forward. We are here to help guide you through these decisions and ensure you get the most tax benefit for your charitable donations. We recommend analyzing the impact of your gifting strategy as part of your comprehensive Financial Plan. Please reach out when you are ready for a conversation.

This Commentary is provided by Spraker West Wealth Management, a registered investment advisor, and is for informational purposes only. It should not be construed as investment advice and is not intended as a solicitation of any specific product or service. Investments and/or investment strategies include risk including the possible loss of principal. There is no assurance that any investment strategy will achieve its objectives. Information provided is not intended as tax or legal advice and should not be relied upon as such. You are encouraged to seek tax or legal advice from a qualified professional.