Charitable Giving and Changing Tax Incentives: What You Need to Know

Charitable Giving and Changing Tax Incentives: What You Need to Know

By Jeff Korbini, CFP®, ChFC, CLU

Charitable giving has always played a vital role in fostering compassion, supporting communities, and driving positive change across the globe. Whether it's through donating time, resources, or financial contributions, individuals and organizations alike can address pressing social, environmental, and humanitarian challenges. From supporting local nonprofits to participating in global initiatives or even small acts of kindness, philanthropy reflects a shared commitment to improving lives and building a better future.

Beyond the emotional and social impact, charitable giving is also influenced by external factors such as public policy and tax law. One key area where this influence is felt is in how tax incentives are structured, often changing depending on which political party holds power. A recent example is the passage of legislation that has been named the One Big Beautiful Bill (OBBB), which introduces significant changes to the tax code related to charitable donations.

Recent Tax Law Changes Under the OBBB

The OBBB includes provisions designed to affect both, standard and itemized deduction filers. Here's a breakdown of the major changes taking effect in 2026.

For Taxpayers Who Use the Standard Deduction

Universal Charitable Deduction: Starting in 2026, taxpayers who do not itemize will be able to claim an above-the-line deduction for cash charitable contributions:

• Up to $1,000 for single filers

• Up to $2,000 for married couples filing jointly

For Taxpayers Who Itemize

Example: If your Adjusted Gross Income (AGI) is $100,000, only contributions above $500 are deductible.

New AGI Deduction Floor: Charitable contributions will only be deductible to the extent they exceed 0.5% of your Adjusted Gross Income (AGI).

Example: If your AGI is $100,000, only contributions above $500 are deductible.

Cap on Tax Benefit for High-Income Donors: For those in the 37% tax bracket, the tax benefit is now capped at 35%, reducing the top-tier deduction value.

Permanent 60% AGI Limit on Cash Contributions: Previously set to expire in 2025, the provision allowing taxpayers to deduct cash donations up to 60% of their AGI, is now permanent.

Philanthropy and Tax Strategy: A Balanced Approach

Help maximize impact & tax efficiency

While the heart of philanthropy should first be rooted in generosity, it’s also wise to understand and leverage available tax benefits. The new laws underscore the importance of being intentional with your giving strategy.

Here are a few simple ways to help maximize impact and tax efficiency:

• Donations: are irrevocable charitable gifts. The sponsoring organizations maintaining the fund have ultimate control over how the assets in the fund accounts are invested and distributed.

• Donor Advised Funds: donors do not receive investment returns. The amount ultimately available to the Donor to make grant recommendations may be more or less than the Donor contributions to the Donor Advised Fund.

  
  

  While annual giving is encouraged, the Donor Advised Fund should be viewed as a long-term philanthropic program. Tax benefits depend upon your individual circumstances. You should consult your tax advisor. While the operations of the Donor Advised Fund and Pooled Income Funds are regulated by the Internal Revenue Service, they are not guaranteed or insured by the United States or any of its agencies or instrumentalities. Contributions are not insured by the FDIC and are not deposits or other obligations of, or guaranteed by, any depository institution. Donor Advised Funds are not registered under federal securities laws, pursuant to exemptions for charitable organizations.

• Donate Appreciated Assets: Gifts of stocks or other investments can provide a double tax benefit—avoiding capital gains and receiving a charitable deduction.

• Plan Around Income Fluctuations: If you anticipate a higher-income year, that might be the best time to make larger charitable gifts.

As the landscape of charitable giving continues to evolve, staying informed about legislative changes can help ensure your generosity has the greatest possible impact, both for the causes you care about and for helping maximizing your own financial resources. Whether you give for personal, moral, or financial reasons or all three your contributions are part of a larger movement to strengthen communities and create a better future for all.

Wells Fargo Advisors Financial Network does not provide legal or tax advice.

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