By Jordon Rosen, CPA, MST, AEP® (Distinguished)
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The One Big Beautiful Bill (OBBB), signed into law on July 4, 2025, made several subtle but significant changes to the rules surrounding charitable contributions. For starters, the bill makes permanent that cash contributions are deductible up to 60% of adjusted gross income (AGI). Any excess contributions can be carried forward up to five years. In addition, beginning in 2026, non-itemizers will be able to deduct up to $1,000 of cash contributions ($2,000 if married filing jointly) as an above-the-line deduction. Contributions to donor advised funds and private non-operating foundations are excluded from this rule.
Also new in 2026, itemizers will take a .5% of AGI haircut on the amount of charitable contributions they can deduct. For example, a taxpayer who makes charitable contributions totaling $10,000 and has an AGI of $100,000 will only be able to deduct $9,500 of their contributions that year. Presumably, the $500 disallowed will be considered an excess contribution which can be carried forward. Consider making larger contributions or bunching several years’ worth of contributions into a donor advised fund (DAF) before the end of 2025 to avoid the haircut. Timing contributions into a year with lower AGI is another strategy. Corporate contributions to qualified charities will also be impacted and will only be deductible in excess of 1% of taxable income.
Another change will impact taxpayers in the top 37% tax bracket. Beginning in 2026, the tax benefit for deducting charitable contributions is capped at 35%. Thus, a high-income taxpayer making charitable contributions totaling $10,000 will receive a tax benefit of $3,500 rather than $3,700. If you will be impacted and are looking to make significant contributions in the near future, consider accelerating those contributions into 2025.
OBBB increases the standard deduction to $15,750 for 2025 ($31,500 for married couples) which means many taxpayers will continue claiming the standard deduction rather than itemizing. However, the Act raises the maximum deduction for state and local taxes from $10,000 to $40,000, which for some taxpayers will now allow them to itemize and therefore claim a larger portion of their charitable contributions. It’s another case for bunching multi-year contributions into a single year utilizing a donor advised fund.
So, what is the bunching strategy and why use a donor advised fund? Bunching the equivalent of several years’ contributions into a year allows you to deduct more of your contributions that year since you will now be able to itemize deductions, and then you claim the standard deduction over the next several years, at which point you simply repeat the process. You may also want to make large charitable contributions to offset large capital gains or bonuses in a particular year. Cash is king, but remember that contributing appreciated securities or other assets such as land to a qualified charity (think Jewish Federation of Delaware) will avoid paying tax on the appreciation.
Using a donor advised fund (it is easy to set up a DAF at Jewish Fund for the Future) to house your contribution allows you to claim a charitable deduction in the year you fund the DAF. As you decide where you want your dollars to go, you periodically request distributions from the fund be sent to your favorite charities (and don’t forget JFD’s annual campaign and its beneficiary agencies!). It’s just that simple.
The above does not constitute tax, legal or financial advice. You should always consult with a competent advisor before implementing any charitable strategy.
For further information on how to set up a donor advised fund, endowment or to make a contribution of securities to Jewish Fund for the Future, please contact Lesley Tryon at Lesley@ShalomDel.org.
Jordon Rosen is a former shareholder at the Wilmington, DE CPA firm of Belfint, Lyons & Shuman, P.A. and is Treasurer of Jewish Federation of Delaware.
