As 2025 comes to an end, clients should take a close look at their charitable giving and estate planning strategies. Significant tax changes are scheduled to take effect on January 1, 2026, and these changes will affect the timing, deductibility, and structure of charitable gifts.
Who Do These Changes Really Affect?
Although the 2026 charitable deduction changes sound sweeping, they will not impact everyone equally. In practice, the people most affected by these changes are:
- Clients who itemize their deductions each year.
- Clients who make large charitable gifts well above the 0.5% AGI floor.
- Higher-income clients in the highest tax bracket.
- Clients who intend to “bunch” gifts or give through donor-advised funds.
New Limitations for Itemizers Starting in 2026
More significant changes will apply to taxpayers who itemize their deductions.
0.5% AGI Floor: Starting in 2026, taxpayers will only be able to deduct charitable contributions that exceed 0.5% of their adjusted gross income (AGI). This means the first portion of your charitable giving will no longer be deductible. For example, if your AGI is $500,000, the first $2,500 of your charitable contributions will not count toward your deduction and only amounts above that level will be deductible.
Reduced Value of Deductions for Top Earners: Taxpayers in the highest income tax bracket will also see the value of their deductions reduced. Beginning in 2026, each dollar of itemized deductions, including charitable contributions, will save 35 cents in taxes instead of 37 cents.
Although the current AGI percentage limits for different types of charitable gifts will remain the same, these new rules will generally make charitable deductions less valuable for itemizers beginning in 2026.
Charitable Planning Opportunities for 2025
Because next year’s charitable giving rules are less favorable, many donors may benefit from completing planned gifts in 2025. Key strategies include:
Accelerate Planned Giving: Individuals considering substantial charitable contributions may secure a larger benefit by completing these gifts before year-end.
Consider Donor-Advised Funds: Contributing to a donor-advised fund, or DAF, in 2025 allows taxpayers to claim a deduction under current law while retaining control over the DAF account and flexibility to recommend grants to charities in future years.
Use Qualified Charitable Distributions: For individuals age 70½ or older, Qualified Charitable Distributions, or QCDs, from IRAs remain an effective way to make charitable gifts without increasing AGI. QCDs are not affected by the 2026 changes and continue to provide strong planning advantages.
New Charitable Deduction for Non-Itemizers in 2026
Beginning in 2026, taxpayers who use the standard deduction will be allowed to deduct a small amount of their charitable giving even if they do not itemize. The maximum deduction will be $1,000 for single filers and $2,000 for married couples filing jointly. This deduction applies only to cash gifts made directly to public charities. Donations to donor-advised funds or private foundations will not qualify, nor will gifts of property or other non-cash items. Although this new deduction provides a modest benefit for taxpayers who do not itemize, it is far less generous than the current rules and will not offer the same level of tax savings for larger or recurring charitable gifts.
Integration with Estate Planning
Estate Tax Exposure and Plan Review: The federal estate and gift tax exemption is scheduled to increase on January 1, 2026, to $15 million per person. Consequently, we recommend our clients review their estate plans to rebalance amounts allocated to charitable and non-charitable beneficiaries. With the increased federal estate tax and gift tax exemptions, a greater portion can be allocated to non-charitable beneficiaries without estate tax consequences. Adjustments to wills, trusts, and beneficiary designations may be warranted.
Planning with Appreciated Assets: Charitable gifts of appreciated securities or real property in 2025 can eliminate future appreciation from a taxable estate and preserve the full fair market value deduction allowed under current law.
Coordination with Family Gifting: Clients making significant gifts to children or trusts this year may also want to evaluate how charitable giving fits into their overall tax and wealth transfer strategy in 2025.
How Sims and Campbell Can Help
With major tax law changes approaching, integrating charitable and estate planning is more important than ever. Our attorneys advise clients on maximizing the tax benefits of charitable giving, reducing estate tax exposure, and ensuring that all components of an estate plan work together effectively. We also encourage clients to speak with their accountants and financial advisors, who can collaborate with our attorneys as a coordinated team to ensure that all legal, tax, and financial considerations are properly aligned. If you are considering year-end charitable gifts or would like to review your estate planning documents, we encourage you to contact our office soon to take full advantage of the planning opportunities available before the end of 2025.
