Understanding today’s tax incentives and the lasting impact of charitable generosity

BY DAVE MCGOWAN

The One Big Beautiful Bill Act, enacted on July 4, 2025, includes a charitable deduction for cash gifts worth up to $1,000 for single filers or $2,000 for married couples filing jointly. Starting in 2026, the new tax break is available even if you don’t itemize deductions. This is helpful because 90% of filers don’t itemize, according to the latest IRS data, which means they can’t take the charitable deduction. (After decades-long freezes or modest increases, the Tax Cuts and Jobs Act of 2017 nearly doubled the standard deduction.)

For households that don’t itemize and give more than this incentive allows, they could use a charitable bunching strategy. This approach involves estimating charitable giving goals for the next few years and making the gifts in a single year instead. They then itemize their deductions in the first year and take the standard deduction in subsequent years.

They can also get a deduction by giving enough to exceed the standard deduction through a donor-advised fund and grant those funds over time to the organizations that matter to them.

There is now a 0.5% threshold on charitable contributions for taxpayers who itemize, which means their charitable contributions would need to exceed 0.5% of their adjusted gross income (AGI), and only the amount exceeding that threshold would be eligible. The allowable cash charitable contributions of 60% of AGI from the Tax Cuts and Jobs Act has been made permanent, and any excess amounts can be carried forward for five years. The non-cash amount remains at 50% of AGI.

Lastly, for those considering charitable distributions from their estates, the Bill extends the estate and lifetime gift tax exemption to $15 million for single filers and $30 million for married couples filing jointly in 2026. These amounts will be indexed for inflation moving forward.

Historically, charitable giving incentives have evolved alongside the federal income tax. The first federal income tax was enacted in 1861 to help pay for the Civil War. The first government incentive for charitable giving came in 1917, when the top income tax rate was abruptly raised to 67 percent to pay for the First World War. The 1917 tax act added a deduction for gifts to charitable organizations to accompany these high rates. Since then, there have been many adjustments to the incentives over the years.

As always, you should seek the counsel of your CPA, financial planner, trust officer, and/or estate planning attorney before doing any significant charitable planning annually or through your estate.

Beyond the technical changes, charitable giving has always been about more than tax benefits. Although I advocate for and welcome the government’s incentives for giving, some of the greatest satisfaction of giving is not financial but lies in knowing that you are making a difference in people’s lives. It has given me great joy to give and volunteer, as well as to be blessed with a career where I have been able to guide others to do the same.

About the Author:

Dave McGowan has been a Chicago-area not-for-profit executive since November 1981.  He is a certified fundraising executive who retired from DuPage Foundation after 25 years in December 2022, before starting davemcgowanconsulting.com, serving donors, their advisors, and the not-for-profits they support.  Dave can be reached at dave@davemcgowanconsulting.com.