Charitable Giving This Season

As we enter the final weeks of the year, it is an important moment to revisit charitable giving strategies, especially given the meaningful tax changes taking effect in 2026 under OBBBA. For those who donate regularly, front-loading charitable gifts this month may help maximize deductions before the new limitations begin.

In 2026, OBBBA will introduce two significant constraints on itemized charitable deductions. First, donations will be subject to a new hurdle rate equal to one-half of one percent of Adjusted Gross Income (AGI). For example, someone with $400,000 of AGI will lose the deduction for the first $2,000 of charitable gifts. In addition, individuals in the top tax bracket will see the value of their charitable deductions reduced from the current 37 percent rate to 35 percent.

A Donor-Advised Fund (DAF) can serve as an effective planning tool for those who wish to accelerate deductions this year while maintaining flexibility for future giving. A DAF allows you to consolidate and “bunch” contributions now, receive the full deduction this year, and recommend grants to charities over time with no required distribution schedule. DAFs qualify as public charities and can accept a wide range of assets, including appreciated securities, private business interests, cryptocurrency, pre-IPO shares, hedge fund and private equity interests, real estate, and life insurance. Contributing appreciated assets may provide both the charitable deduction and the opportunity to avoid capital gains tax. While DAFs offer a streamlined, lower-maintenance alternative to private foundations, one key difference is that family members cannot receive compensation for their roles in the foundation.

Timing remains essential. Charitable contributions generally must be received and processed by December 31 to count for this tax year. Transfers to DAFs follow the same timeline.

For those age 70½ or older, Qualified Charitable Distributions (QCDs) remain a highly efficient way to give. A QCD allows up to $108,000 in 2025 to be transferred directly from an IRA to a qualified charity. The amount counts towards the Required Minimum Distribution and QCDs do not increase taxable income. Lower income can help reduce taxes on Social Security benefits, lower Medicare Part B and D premiums through the IRMAA calculation and decrease exposure to the 3.8 percent Net Investment Income Tax. While these reductions are often modest for higher-income households, the QCD remains a valuable tool. To qualify, the transfer must go directly from the IRA to the charity by December 31, and QCDs cannot be made to Donor-Advised Funds.

Those who give a meaningful portion of income should also be aware that different contribution types carry different deductibility limits. Cash gifts are generally deductible up to 60 percent of AGI, while appreciated securities are deductible up to 30 percent, and any unused deduction can be carried forward for up to five years.

Please reach out with any questions about charitable giving strategies or year-end planning.