As we approach year end, I wanted to share an important opportunity related to charitable giving. The year 2025 may be the most advantageous time to make significant charitable gifts.
Beginning in 2026, new rules under the "One Big Beautiful Bill Act (OBBBA)" apply:
- Itemizers will only be able to deduct contributions above 0.5% of adjusted gross income¹.
- High‑income donors will face a cap, limiting deductions to an effective value of 35%. This affects taxpayers in the 37% bracket which for 2025 applies roughly to taxable income above $609,350 (single) and $731,200 (married filing jointly).²
- A new "above the line" deduction will be available for those that use the standard deduction, but these are capped at $1,000 for individuals and $2,000 for married couples.²
By “bunching” several years of planned gifts into 2025, you can lock in the current, more favorable rules. A convenient way to structure larger gifts is via a donor‑advised fund (DAF). A DAF allows you to make a single, larger contribution now, receive the full tax deduction immediately, and then recommend grants to your favorite charities over time. This means you can maximize your tax benefits today while continuing to support causes you care about in the years ahead.
Example: Assume you are a donor with $250,000 in adjusted gross income this year
- Suppose you contribute $15,000 to a DAF before year end. You can deduct the full $15,000 under current rules.
- If you wait until 2026, the 0.5% AGI floor removes the first $1,250 and only $13,750 would be deductible. If your income is high enough to put you in the top tax bracket (37%), the effective deduction benefit is further reduced because of the 35% cap.⁴
- Bottom line: By “bunching” gifts into the 2025 calendar, you can preserve greater deductibility and avoid the new floor and cap taking effect in 2026.
Additional Strategies to Amplify Your Impact
1. Give Appreciated Stock Instead of Cash
Donating long‑term appreciated securities (like stocks or mutual funds) directly to a DAF or charity can be one of the most tax‑efficient ways to give.⁵
- You avoid paying capital gains tax on the appreciation.
- You still receive a charitable deduction for the full fair market value of the stock.
- This allows you to give more to charity while reducing your tax liability.
Example: If you bought stock for $5,000 that is now worth $15,000, donating it directly means you deduct the full $15,000 and avoid capital gains tax on the $10,000 gain.
2. Pair Charitable Giving with Roth Conversions
2025 is also a strategic year to consider Roth IRA conversions. Converting traditional IRA assets to a Roth creates taxable income — but charitable deductions can offset that income⁶.
- By making a large charitable gift in 2025, you can reduce or even eliminate the tax impact of a Roth conversion.
- This strategy lets you lock in today’s tax benefits while positioning your retirement savings for tax‑free growth in the future.
- It’s a way to align your philanthropy with long‑term financial planning.
Acting before December 31, 2025 ensures you preserve greater deductibility, avoid new limits, and unlock additional strategies like appreciated stock gifts and Roth conversions. Together, these tools allow you to give wisely, generously, and with lasting impact.
We encourage you to consider making your charitable gifts this year — and to explore how these strategies can help you maximize both your giving and your financial planning.
References
¹ Kiplinger — *Charitable Deduction Changes Under OBBBA*
² The Wall Street Journal — *Coverage of OBBBA Provisions Affecting Itemized Deductions*
³ Tax Foundation — *Charitable Giving and Deduction Limits Under OBBBA*
⁴ Barron’s — *AGI Floors and Limits for Charitable Deductions*
⁵ WealthManagement — *Benefits of Donating Appreciated Stock to Charities and DAFs*
⁶ Forbes — *Pairing Charitable Giving with Roth Conversions for Tax Efficiency*
⁷ Journal of Accountancy — *Charitable Giving Strategies and Tax Planning Under OBBBA*