The One Big Beautiful Bill Act, “OB3”, introduced some major charitable donation changes. Here’s what you need to know:
C-Corporations – Effective Tax Years Beginning after December 31, 2025
The intention of OB3 was to encourage large, more substantial corporate giving. There will be a 1% floor of taxable income applied to charity expenses. Corporations can only deduct the portion of their charitable contributions that exceed 1% of taxable income, the 1% is nondeductible unless specific carryover conditions are met. The maximum deductible contribution is still capped at the same 10% of taxable income that existed pre-OB3. If donations exceed that amount, the excess is carried forward for five years.
Planning opportunities:
- Consider bunching the 2026 contribution into 2025, to avoid the 1% floor.
- Watch the bookkeeping- make sure your charity donation expense account is only for direct donations to 501(c)(3) charities. Split off any part of the contribution that is related to sponsorship or promotion to an advertising or marketing deduction account.
Individuals/Trusts – Effective January 1, 2026
For individuals who do not itemize deductions and instead take the standard deduction:
- The maximum deduction is $1,000 for single filers, or $2,000 for married couples filing joint.
- A deduction is allowed for cash/check/credit card donations only.
- Donations to donor-advised funds or private non-operating foundations are ineligible for this above-the-line deduction.
- Donations of non-cash items like household goods to Goodwill, or gifts of stock, are ineligible as well.
For individuals who itemize and certain trusts:
- A 0.5% floor will be applied starting in 2026. Donations (of all types) need to be more than 0.5% of your AGI to get the benefit. For example, if your AGI is $100,000, your first $500 is considered non-deductible. Donations above that $500 threshold are tax-deductible.
- The tax benefits of charitable giving will be capped at 35% for those in the 37% tax bracket.
Planning Opportunities
- Bunch your charitable giving into one tax year.
–Consider moving some of your 2026 contributions to the 2025 tax year to maximize savings before the OB3 changes are in effect.
–Contribute to a Donor-Advised Fund before the end of 2025. This would allow you the more favorable tax deduction now and then control the funding to the charities spread out over the next few years. - If you are over age 70.5 – consider a QCD – Qualified Charitable Distribution direct to charity donation from your IRA (individual retirement account). This will help satisfy your required minimum distribution (if applicable) and is also tax efficient as it does not have a floor or ceiling. It also keeps that income out of your AGI, which is the driver of a lot of tax credits and benefits, and can affect other things like Medicare premiums. The maximum 2025 QCD per individual is $108,000 and will be adjusted for inflation for 2026 (estimated to be $115,000).
It is important to keep all documentation regarding your charitable donations. It helps us decipher deductibility, especially under this Act. New Acts like this can be difficult to understand and we hope this information was beneficial, but if you have any further questions or want help in maximizing your tax savings, please consider speaking with a member of our Tax Team. We are happy to help!