Tax Incentives of Giving

For taxpayers who itemize deductions, there is now a charitable deduction floor, meaning that the deductibility of contributions must exceed 0.5% of their adjusted gross income before they can claim any deduction. Additionally, for those in the highest tax bracket of 37%, the value of their itemized deductions (including charitable contributions) is capped at 35%, meaning they don’t receive a dollar-for-dollar deduction for their donation. These two new provisions might make it more beneficial for some donors to accelerate giving in 2025 before these restrictions take effect in 2026 or to consider making a large donation to a donor-advised fund in 2025 to maximize the benefit of the donation this year and use the fund to make charitable contributions to nonprofit organizations in future years.

Another consideration is the use of qualified charitable distributions from retirement accounts. When a donor donates in this manner, their contribution directly reduces their taxable income and does not have the same limitations as an itemized deduction.