What's Happening?
Significant changes to tax laws affecting charitable donations are set to take effect in 2026, following President Trump's tax and spending package. These changes will impact both itemizers and non-itemizers
differently. For itemizers, a new 0.5% adjusted gross income (AGI) floor will mean only donations exceeding this threshold are deductible. Additionally, a cap on deduction value will limit the tax benefit for top earners to 35%. Non-itemizers will be able to claim a deduction for cash donations up to $1,000 for singles and $2,000 for couples. These changes are expected to influence the timing and amount of charitable contributions.
Why It's Important?
The upcoming tax law changes could significantly impact charitable giving patterns in the U.S. By altering the deduction thresholds and caps, the new rules may discourage donations from high-income individuals who itemize, while potentially encouraging smaller donations from non-itemizers. This shift could affect the funding of charitable organizations, which rely heavily on donations. The changes may also prompt taxpayers to adjust their giving strategies, such as bunching donations or utilizing donor-advised funds, to maximize tax benefits. Understanding these changes is crucial for taxpayers to optimize their charitable contributions and for charities to anticipate shifts in donation trends.
What's Next?
Taxpayers are advised to consider their donation strategies carefully in light of the upcoming changes. Itemizers may benefit from accelerating their donations before the new rules take effect, while non-itemizers might wait until 2026 to take advantage of the new deduction. Financial advisors are likely to play a key role in guiding clients through these changes, helping them navigate the complexities of the new tax landscape. Charitable organizations may need to adjust their fundraising strategies to accommodate potential shifts in donor behavior.
