Charitable Giving After the One Big Beautiful Bill Act (OBBBA)

Lena Tassi, CPA, MSA •

​The One Big Beautiful Bill Act (OBBBA), signed in July 2025, changed the deductibility of charitable giving for individual and business taxpayers beginning after December 31, 2025. Here is a quick overview of the changes and how they may impact you.

Changes to Charitable Giving for Individual Taxpayers
 
Introduction of 0.5% Floor on Charitable Deductions for Itemizers
Pre-OBBBA

• The IRS allows individuals to deduct all qualified charitable donations up to the taxpayer’s adjusted gross income (AGI) limits, generally limited to 50% of AGI for cash donations. Once meeting the itemized deduction threshold, there are no minimums that need to be met before deductibility kicks in.

What Changed?

• Individuals who itemize will have to reach a 0.5% floor before the IRS allows any tax deduction on their charitable contributions. The 0.5% floor is calculated based on the taxpayer’s AGI, which means the higher your AGI, the higher your contribution will need to be in order to clear the 0.5% floor to begin receiving any tax benefits. This floor reduces the tax incentive of charitable contributions for itemizers.

What Does This Look Like?

• Let’s say your AGI is $1,00,000 and you make $100,000 of charitable contributions in 2026. The allowable contribution will be $95,000.

New Limits on Charitable Deductions for Itemizers in the Highest Income Tax Bracket
Pre-OBBBA

• The IRS does not currently impose any limits on itemized deductions.

What Changed?

• The OBBBA permanently repeals the pre-Tax Cuts and Jobs Act limitations on itemized deductions and instead imposes a limit to what is effectively a 35% marginal rate, even if the taxpayer is in the 37% tax bracket.  

What Does This Look Like?

• Using the example above, after the .05% floor, the allowable contribution is $95,000. If the taxpayer is in the 37% tax bracket, their $95,000 deduction is capped at a 35% offset or a tax benefit of $33,250.

Above-the-Line Tax Deductions for Cash Contributions for Non-Itemizers
Pre-OBBBA

• The IRS does not currently allow above-the-line deductions on charitable contributions for individuals. Instead, deductions on charitable contributions can only be taken by taxpayers who itemize their deductions on Schedule A. This means that if you don’t itemize on your individual tax return, you don’t get the tax benefit for any charitable contributions you made during the year, providing no tax incentive for non-itemizers to donate to any charity.

What Changed?

• Cash contributions to qualified charities will be allowed to be taken as an above-the-line deduction for non-itemized taxpayers, up to $1,000 for single taxpayers and $2,000 for married taxpayers. Keep in mind that donations to donor-advised funds and private non-operating foundations don’t qualify for this deduction, but this is still great news for the many taxpayers who donate to public charities who wouldn’t otherwise qualify for a deduction under the previous rules.

In summary, the impact on charitable deductions on your personal tax return largely differs depending on whether you are a non-itemized or itemized taxpayer. If you’re considering making a charitable contribution near year-end, utilize tax planning strategies to determine what year would be most beneficial for you to make the charitable contribution in. If you’re not sure whether or not you itemize your deductions, take a look at last year’s tax return. If you itemized last year, it’s likely that you’ll itemize this year too, unless there’s been a significant change to your allowable deductions, in which case reach out to your tax professional to evaluate your current situation.
 
Changes to Charitable Giving for Corporate Taxpayers
 
Introduction of 1% Floor on Charitable Deductions for C-Corporations
Pre-OBBBA

• The IRS allows corporations to deduct up to 10% of their taxable income, with no minimum floor. Any contributions in excess of 10% can be carried forward up to five years.

What Changed?

• Corporations will have to reach a 1% floor before being able to deduct their charitable contributions. The 1% floor is calculated based on the taxpayer’s taxable income and the deduction is still capped at 10%. Any contributions in excess of 10% can be carried forward up to five years with contributions below the 1% floor being nondeductible and only carrying over if a future year exceeds the 10% cap.

In summary, while some corporations may have less incentive to make charitable contributions, consider tax planning strategies to incorporate the timing and amount of contributions to maximize deductions. Also, consider corporate sponsorship opportunities with your favorite charity which benefits their mission and provides your business with exposure in your local community. Rules surrounding the deductibility of sponsorship payments haven’t changed, so corporate sponsorships may qualify as a business expense under IRC Section 162.
 
This article provides the general rules and limitations that will take effect with the OBBBA. We recommend you consult with your tax professional to determine the best strategies for charitable giving. Our team at Mason + Rich is here to help you navigate the changing deduction rules under the OBBBA and beyond. If you have questions about these updates, feel free to give us a call at (603) 224-2000.