Due to tax law changes passed in 2025, the timing of your charitable contributions may make a big difference in your tax bill. Some taxpayers will receive a much better benefit from accelerating their contributions and making them before the end of the 2025 calendar year. Some will receive a better benefit from holding off and making their contributions in 2026.

The tax planning strategy that will be more advantageous to you depends on whether you claim the standard deduction or itemize your deductions.

Remind me: What is the difference between standard and itemized deductions?

On your tax returns, you can reduce your taxable income by claiming either:

  • The standard deduction, which is one set amount, depending on your age, tax return filing status, and other factors.
  • Itemized deductions, in which you add up certain kinds of expenses (subject to limits or thresholds) and claim the total amount as a deduction on your tax return. Examples of eligible expenses include medical expenses, mortgage interest, property taxes, state income taxes, and charitable contributions.

In most cases, you can pick the option that works best for you each year. You are not locked in to one method or the other, so your tax preparer will generally assess which option gives you the better benefit each year.

However, some filers, such as nonresidents and married individuals whose spouse files separately and claims itemized deductions, are required to itemize their deductions.

Recent tax law changes affect who can deduct charitable contributions and how much you can deduct.

On July 4, 2025, the One Big Beautiful Bill Act (OB3), otherwise known as P.L. 119-21, was signed into law. OB3 introduced a number of changes that

  • Increase certain itemized deductions available to itemizers
  • Decrease other itemized deductions available to itemizers
  • Make available some additional deductions for “non-itemizers” (i.e., those claiming the standard deduction)
  • Make available new deductions for both itemizers and non-itemizers.

Some OB3 changes go into effect in the 2025 tax year, and others (such as those that apply to charitable contributions) do not go into effect until 2026. Most of the changes only apply to tax years 2025 through 2028, but a few of the changes are “permanent.”

These changes and the timing differences of when they go into effect create a number tax planning opportunities for 2025 and the coming years.

How do these changes affect itemizers who make charitable contributions?

If you itemize, you should keep these four points in mind:

1. For charitable contributions, the changes to itemized deductions do not start until tax year 2026. Therefore, the rules you have been operating under since 2018 for charitable contributions remain the same for 2025.

2. Beginning in 2025, you must make more than 0.5% of your adjusted gross income (AGI) in charitable contributions to be eligible for a deduction.

Example:
You have adjusted gross income of $1,000,000. You make a $100,000 charitable contribution to a US charity on January 1, 2026. The new 0.5% floor rule disallows the first $5,000 of the $100,000 charitable contribution. Therefore, you will only get a $95,000 charitable contribution as an itemized deduction.

3. Starting in 2026, benefits for charitable contributions will be capped at the 35% tax bracket. This means that if your tax bracket exceeds 35%, you will still receive a deduction for your charitable contributions, but your contributions will only reduce your taxes by 1 x .35 for each dollar of deductible contributions rather than by 1 x [your tax rate] for each dollar.

4. Lastly, the deduction for charitable contributions is still limited to 60% of your AGI, and that limitation is now permanent. Under this limitation, if you make contributions greater than 60% of your income, you can still carry forward the excess contribution amount and deduct it during the following year(s).

Example:
You have an adjusted gross income of $100,000. In 2026, you donate $70,000 in cash to a qualified public charity.

Deduction Calculation:
Maximum contribution deductible in 2026 = 60% × $100,000 = $60,000

Result:
You will deduct $60,000 on your 2026 US Individual Income Tax Return (Form 1040, Schedule A). The excess $10,000 is carried forward for up to 5 years and can be deducted in a future year (still subject to that year’s AGI limits).

What is the main takeaway for itemizers?

If you itemize, you should consider making large charitable contributions in 2025 as opposed to 2026 due to the new 5% floor and other caps that go into effect in 2026 under OB3. A potential strategy is to aggregate charitable contributions into a donor advised fund before the end of calendar year 2025. You can then carry forward any excess amounts (due to the 60% limitation) to future years.

How do the OB3 changes affect non-itemizers who make charitable contributions?

1. If you expect to claim the standard deduction, OB3 offers an opportunity to receive an additional deduction for some charitable contributions. Typically, only taxpayers who itemize can receive a tax benefit from making charitable contributions since the deduction can only be claimed on the itemized deduction schedule (Schedule A).

However, OB3 creates a new “above the line” deduction for charitable contributions. That way, those claiming the standard deduction will also be able to deduct up to $1,000 of charitable contributions (or $2,000, if your filing status is married filing jointly), on top of the standard deduction.

This change goes into effect in 2026 for contributions made between 2026 and 2028. Any contributions that exceed the $1,000/$2,000 limit cannot be carried forward to future years.

2. Just because you have not itemized in recent years does not mean you will remain a non-itemizer for 2025. Although the most recent IRS statistics show that around 8% of individuals itemize their deductions, OB3 is likely to increase that percentage.

That’s because one OB3 change—the change to the state and local tax (SALT) deduction—is likely to make itemizing more advantageous for many taxpayers. Under OB3, the maximum amount of state and local tax payments that can be claimed as an itemized deduction (a.k.a., “the SALT cap”) increases from $10,000 to $40,000 for some income levels.

If you qualify for this increased deduction, then you may benefit from greater tax planning to maximize the impact of both your charitable contributions and your overall deductions.

What is the main takeaway for non-itemizers?

If you expect to remain a non-itemizer, then you should consider delaying charitable contributions to 2026 due to the new changes under OB3. As a non-itemizer, if you make a charitable contribution in 2025, you won’t receive a tax benefit from the contribution. Whereas if you wait until 2026, then you will likely qualify for a deduction of up to $1,000 (or $2,000, if filing married filing jointly).

Lastly, you should be aware that you won’t be able to deduct or carry forward contribution amounts above the $1,000/$2,000 limits. If tax planning is a critical factor in your charitable giving, then you should time your contributions for 2026 to 2028 so as not to exceed those annual limits.

 

Since 1983, The Wolf Group has helped clients lower their income tax liabilities by maximizing the use of available deductions and credits. If you have further questions about how the OB3 changes affect you, feel free to contact us for more information.