Will New Tax Laws Impact Your Giving?

Here are some strategies that may help enhance the tax efficiency and impact of your charitable contributions.

With the end of 2025 approaching, you might be thinking about charitable donations. If charitable giving, especially in the wake of the government shutdown that stressed the resources of so many charities, is on your mind, it helps to know how new rules might play a role in your tax planning.

Three big changes coming

In 2025, you can deduct charitable contributions only if you itemize deductions on your federal income tax return. The deduction is limited to 60% of your adjusted gross income (AGI) for cash contributions to qualified public charities.

Beginning in tax year 2026, the following changes take effect:

1. An above-the-line charitable deduction has been reinstated for taxpayers who claim the standard deduction. Single taxpayers can deduct up to $1,000 in cash donations ($2,000 for married joint filers) to qualified charities.

2. For taxpayers who itemize, qualified donations will only be deductible if they exceed 0.5% of AGI. For example, a taxpayer with AGI of $100,000 can use the deduction once their total donations exceed $500. Donations totaling $500 or less will not be deductible.

3. There is a new 35% limit on the tax benefit of itemized deductions, including charitable donations. This provision only affects taxpayers in the top marginal tax bracket.

Bunching and Timing

For high income donors who itemize deductions, a bunching strategy, which involves making larger gifts less frequently, could become more beneficial.

If you can't itemize deductions, you may want to hold any additional cash donations until 2026, when they can qualify for a tax deduction even if you don't itemize.

Utilize a donor-advised fund

Another way to bunch contributions or generate a large charitable deduction for the current year, especially when you are not sure where you want the money to go, is to open a charitable investment account called a donor-advised fund or DAF*. Donors who itemize deductions on their federal income tax returns can write off DAF contributions in the year they are made, then give the funds away after deciding which charity to support. DAF funds can only be used for making gifts to charities.

Tips for cost-effective giving

Give directly to the charity. When contacted by fundraisers, never give out personal information over the phone or in response to an email you didn't initiate. Take time to vet the charity before you donate.

Check out the charity's track record. There are several well-known charity "watchdogs" — such as CharityNavigator.org, GuideStar.org, and CharityWatch.org— that rate and review nonprofits. These organizations provide information that can help you evaluate charities and make wise choices. Charities with high administrative costs may not be spending enough on programs and services or they could be in financial trouble.

Look for "leverage" opportunities. A wealthy donor or corporation may offer to match private donations to a charity during a certain window of time, and some employers have charitable giving programs that match funds donated by employees to qualifying organizations.

To learn more about making the most of your charitable giving, contact MNM Vested, LLC.

*DAFs have fees and expenses that donors giving directly to a charity would not face. All investing involves risk, including the possible loss of principal, and there is no guarantee that any investment strategy will be successful.