How Charitable Giving Changes Under the One Big Beautiful Bill Act

Understanding Charitable Giving in the Era of OBBBA

As small business owners and entrepreneurs prepare for the implications of the One Big Beautiful Bill Act (OBBBA), it's crucial to understand how these changes to the tax code will influence charitable giving strategies. The good news is that OBBBA introduces significant adjustments that aim to encourage philanthropy while also imposing some constraints for higher-income individuals.

Key Changes for Non-Itemizers: A New Era of Inclusion

One of the most notable shifts under OBBBA is the introduction of a permanent above-the-line deduction for charitable contributions, which will benefit non-itemizers starting in 2026. Previously, non-itemizers—who constitute the majority of taxpayers—could not claim deductions for charitable donations. With OBBBA, single filers will be able to deduct up to $1,000, and married couples filing jointly can claim up to $2,000. This is an increase from the temporary provision during the pandemic that allowed a deduction of only $300 per filer. The shift is expected to significantly increase participation in charitable giving, making philanthropy more accessible to approximately 86% of taxpayers projected to claim the standard deduction in 2026.

A Shift for Itemizers: New Floors and Deductions

Itemizers will face new regulatory landscapes as OBBBA imposes a floor on charitable deductions beginning in 2026. Contributions below 0.5% of a taxpayer's adjusted gross income (AGI) will not be deductible. To exemplify, a taxpayer with an AGI of $200,000 will only be able to deduct amounts exceeding $1,000. Furthermore, while the deduction limit for cash contributions will remain heightened to 60%, non-cash contributions still adhere to a 50% limit, all of which present significant considerations for wealthy individuals and corporations. The legislation also introduces a limitation on the value of itemized deductions for those in the highest tax bracket, capping them at 35 cents on the dollar instead of 37 cents.

Year-End Strategies: Planning Ahead

As we approach the end of the year and prepare for tax season, small business owners should leverage strategies to optimize their charitable giving. Consider the timing of contributions, as those upsizing their donations to exceed the deduction floor thresholds can maximize their tax advantages. Utilizing a 'bunching' strategy—where larger contributions are concentrated into a single tax year—could circumvent some limitations posed by the new rules.

Critical Considerations for High-Income Donors

High-income earners need to reassess their charitable giving strategies. The modifications brought on by OBBBA could result in increased after-tax costs of giving. Taxpayers in the 37% tax bracket will now only see a tax benefit of 35% for their contributions, prompting the consideration of accelerating gifts into the tax year 2025 to capitalize on current rates. Due diligence is essential, especially given the changes to the deduction values and new floors that could incentivize less frequent but larger donations.

Strategies for Corporations: Navigating New Terrain

Corporations will also need to navigate the enhanced regulatory environment under OBBBA, particularly the introduction of a 1% floor for charitable deductions. This challenges corporations to exceed this threshold to claim any deductions on their charitable contributions. Corporations should reassess their philanthropic strategies accordingly, potentially increasing their contributions to ensure compliance and maximize tax efficiency. Planning for the phased increase of state and local tax (SALT) deductions should also be factored into overall charitable strategies.

Looking Forward: Predictions and Partnerships

The net impact of these changes on charitable contributions could lead to both incentives and disincentives for giving. Small business owners and entrepreneurs are encouraged to consult with tax professionals to design a charitable giving strategy that aligns with their business goals and philanthropic values. As more taxpayers opt to take advantage of the OBBBA provisions, the fiscal landscape of charitable giving is poised to evolve—making it essential for businesses to stay informed and agile.

Your Role in the Giving Economy: Call to Action

In light of these significant changes, now is an opportune moment for small business owners to not only plan their end-of-year charitable donations but also to observe and learn the implications of these tax policy shifts. Engage with financial advisors to explore creative giving solutions that can maximize both tax benefits and social impact. The philanthropic landscape is changing—are you prepared to adapt?