The “One Big Beautiful Bill” (H.R. 1)  introduced significant changes to the U.S. tax code, and these reforms affect both individual and corporate giving incentives. Understanding these changes is crucial for donors looking to maximize their impact and for non-profits seeking to adapt their fundraising strategies. We’ll explore the key provisions, their projected effects, and what you can do to navigate the new landscape.

The Tax Cuts and Jobs Act (TCJA) of 2017 significantly increased the standard deduction, reducing the number of taxpayers who itemize. As a result, millions of households lost the tax-based incentive to donate to charity. Studies from organizations like the Indiana University Lilly Family School of Philanthropy estimated a drop in charitable giving by as much as $20 billion in the year following the law’s implementation. The new law builds on the TCJA, making some of its provisions permanent while introducing new ones.

Key changes

One of the key changes in the new bill is the Universal Charitable Deduction. Beginning in 2026, a new “above-the-line” charitable deduction allows taxpayers who take the standard deduction to deduct a portion of their charitable contributions. Single filers will be able to deduct up to $1,000, while married couples filing jointly will be able to deduct up to $2,000. This provision aims to re-engage the vast majority of Americans who no longer itemize. It’s a modest but permanent incentive to encourage broad-based giving.

There are also key changes for higher-income donors who itemize their deductions. The first is the 0.5% Adjusted Gross Income (AGI) Floor. Itemizers must now contribute at least 0.5% of their AGI before they can claim a charitable deduction.  For example, a taxpayer with $ 200,000 of taxable income can only deduct charitable contribution above $1,000 (.5 % of $ 200,000).

The second is a 35% Cap on Deduction Value. For those in the top marginal tax bracket (37%), the tax benefit for charitable contributions is capped at 35%.

The role of marginal tax brackets

The amount of tax a person saves from a charitable contribution depends on one’s ”marginal tax bracket.” For the 2025 tax year that we are in now, the brackets are as follows (amounts shown are taxable income):

Strategic Considerations for Itemizing Donors- Adapting Your Giving Strateg

There are several strategies for maximizing your deductions:

• “Bunching” Your Giving. To overcome the new AGI floor, consider making two or more years’ worth of donations in a single tax year. You can then itemize in that year and take the standard deduction in the “off” years.
• Donor-Advised Funds (DAFs). DAFs are an excellent tool for a bunching strategy. You can make a large, tax-deductible contribution to the DAF in one year and recommend grants to your favorite charities over time.
• Qualified Charitable Distributions (QCDs) from an IRA. For individuals aged 70½ and older, QCDs (up to $100,000 annually) are a tax-efficient way to give. The donation counts toward your required minimum distribution (RMD) and is not included in your taxable income.  This also reduces your modified adjusted gross income (MAGI) used in calculating your Medicare Parts B and D Income-related Monthly Adjustment Amounts (IRMAA).

New threshold for corporate deductions

The new law also has implications for corporate giving. Corporations are now required to donate at least 1% of their taxable income to a qualified charity to be eligible for any charitable deduction. This provision sets a higher bar for corporate philanthropy. It may encourage companies to increase their giving to meet the threshold but could also lead to a strategic reassessment of their donation schedules.

In conclusion, the new tax law creates a dual-track system for charitable giving. The permanent universal deduction offers a modest new incentive for everyday donors. New floors and caps reduce the tax benefits for high-net-worth individuals and corporations. Donors, non-profits, and advisors must be aware of these changes and adapt their strategies to maximize the impact of their generosity.