What the upcoming changes to charitable deductions could mean for you
Key Takeaways
- Taxpayers should evaluate charitable giving strategies before 2026 to maximize deductions under the new One, Big, Beautiful Bill Act (OBBBA) rules.
- Individuals can help strengthen year-end tax planning by reviewing gift and estate planning, Roth conversions and investment losses.
- Working with trusted tax advisors can help align charitable contributions, state and local tax (SALT) deductions and long-term financial goals.
As we approach year-end, it is crucial to review any tax planning opportunities that may be available to you, especially in light of the various changes from “The One, Big, Beautiful Bill Act” (OBBBA). One of the most significant changes affects charitable deductions beginning in 2026. You may want to consider making charitable contributions before December 31, 2025 to maximize the current tax rules.
The benefits of specific planning opportunities can vary based on the income or losses expected for the year. By this point, many taxpayers will have a good picture of where they stand. Read on for more details on how you can prepare for the upcoming changes to charitable deductions and other tax planning considerations for year-end.
New Charitable Deduction Limits Coming in 2026 — Here’s How to Prepare
Under OBBBA, starting in 2026 there are some significant changes to charitable deductions. Changes include:
- For taxpayers who do not itemize, there will be an “above-the-line” deduction for cash contributions to public charities of up to $1,000 for single taxpayers and $2,000 if married filing jointly.
- For taxpayers who itemize, there is a new 0.5% floor on charitable contributions, meaning only the portion of charitable contributions that exceed 0.5% of an itemized taxpayer’s adjusted gross income will be deductible.
- The tax value of charitable deductions is also capped at the 35% tax rate (even if the taxpayer is in a higher 37% bracket).
Since these changes start for tax year 2026, taxpayers may consider making charitable contributions before December 31, 2025, to maximize the current tax rules. This is especially important for those who may have significant charitable contributions planned for early 2026, since it may be more tax advantageous to make those contributions before December 31, 2025, instead.
For some taxpayers who typically do not itemize their deductions, it may also make sense to “bunch” your charitable contributions. This involves making two- or three-years’ worth of charitable contributions in the current year so that you maximize your tax deduction by exceeding the standard tax deduction otherwise available.
As a reminder, taxpayers who receive a required minimum distribution (RMD) but do not need the funds can also consider a qualified charitable distribution from their IRA. Individuals can direct up to $108,000 from their IRA to go directly to a qualified charity and their taxable income is reduced by that amount.
There are many options available to achieve your charitable goals. Depending upon the amount of your charitable contribution and your specific tax situation, you will want to consider whether the gift should be made in cash, appreciated securities or other assets and whether the gift should be made directly to the charitable organization or to a donor-advised fund. Since the deduction limits differ depending upon the various methods used, it can be helpful to discuss options with your PKF O’Connor Davies team in advance of making the gift so that proper tax projections and planning can be done, with an eye toward ensuring your overall goals are met.
Additional Year-End Tax Planning Opportunities
Below are some additional helpful tips as you review your overall tax plan.
Planning Strategy | Details | Opportunities |
Gift/Estate Planning
| Under OBBBA, the lifetime gift/estate tax exemption amounts were made “permanent”. The 2025 annual exclusion amount is $19,000 per person per recipient. The lifetime gift/estate tax exemption for 2025 is $13.99 million per person and will increase to $15 million per person for 2026. | Consider paying for educational and medical expenses on behalf of another person (this can be on anyone’s behalf and is not limited). As long as the payments are made directly to the educational or medical institution, they are not considered a taxable gift and do not count toward the annual exclusion or lifetime exemption. |
Tax Loss Usage
| Investment portfolios should be reviewed to consider if there are any losses that should be recognized before year-end to offset any capital gains. | In cases where losses are greater than gains and an overall loss is recognized, $3,000 of that loss can be used to offset other taxable income in the current year and the remaining losses can be carried forward to future tax years. |
Roth IRA Conversion
| While a Roth IRA conversion will result in taxable income, it may still make sense to convert your IRAs, depending upon your tax rate and other tax attributes. Some advantages of a Roth IRA over a traditional IRA include non-taxable withdrawals and no required minimum distributions. | If your IRA has decreased in value, it may make sense to convert now at a lower value and allow future growth to become tax free. This is another area that your team at PKF O’Connor Davies can assist in providing projections to help determine the most tax advantageous timing and amount given your situation. |
State and Local Tax (SALT) Deduction | Under OBBBA, the SALT deduction cap for individuals will increase from $10,000 to $40,000 for 2025 – 2029. However, there is a phase-out for higher income taxpayers if their modified adjusted gross income exceeds $500,000 during 2025. | If you expect to be under the $500,000 adjusted gross income, it may make sense to accelerate SALT payments; however, this is another area that your team at PKF O’Connor Davies can advise on to ensure that doing so will not impact your alternative minimum tax as well. |
Contact Us
While this article highlights some initial considerations, the best approach is to discuss your specific situation with your advisors. If you have any questions regarding these matters, please contact your PKF O’Connor Davies client service team or:
Richelle Maguire, CPA
Partner
rmaguire@pkfod.com
Sarah A. Guilmette, CPA
Partner
sguilmette@pkfod.com