Why you may want to hold off on year-end giving

The One Big Beautiful Bill creates material timing incentives for charitable giving beginning in 2026: taxpayers who take the standard deduction will be able to claim a new above-the-line deduction for cash gifts (limited to $1,000 for singles and $2,000 for joint filers, excluding donor-advised funds, supporting organizations, cryptocurrency and non-cash donations), whereas those who itemize will face a new 0.5% of AGI floor on deductible gifts and a 60% of AGI cap on cash contributions. The practical result is that roughly 90% of non-itemizers could save tax by deferring some donations into 2026 (e.g., a 22% taxpayer saves $220 on a $1,000 gift), while itemizers may accelerate giving into 2025 to avoid the new floor and limits; donors must retain contemporaneous written acknowledgements for gifts over $250. Investors and advisers should expect a shift in the timing of year-end philanthropy and attendant cash flows as taxpayers optimize around these rules when planning 2025–26 contributions.

Analysis

The One Big Beautiful Bill creates a new above-the-line deduction for cash charitable contributions beginning in tax year 2026, allowing non-itemizers to deduct up to $1,000 (single) or $2,000 (married filing jointly) on their 2026 returns filed in 2027; the deduction excludes donor-advised funds, supporting organizations, non-cash gifts and cryptocurrency. This new break does not apply to 2025 returns, so taxpayers who claim the standard deduction—roughly 90% of filers—could materially benefit by shifting cash gifts into 2026 to capture up to $220 in tax savings on a $1,000 gift at a 22% marginal rate (or $440 for a $2,000 joint gift). For taxpayers who itemize, the law imposes a 0.5% of AGI floor on deductible charitable giving and retains a 60% of AGI cap on cash contributions beginning in 2026, creating an incentive for itemizers to accelerate donations into 2025 to avoid new limits. Practical implementation risks include stricter documentation requirements (contemporaneous written acknowledgements for gifts over $250), the exclusion of crypto and non-cash donations from the above-the-line break, and likely timing-driven swings in charities’ year-end cash flows as donors optimize between 2025 and 2026.

Key Decisions for Investors

• Non-itemizers should model deferring discretionary cash gifts into 2026 to capture the $1,000/$2,000 above-the-line deduction if the tax benefit exceeds the personal value of earlier giving
• Itemizers should evaluate frontloading significant charitable contributions into 2025 to avoid the 0.5% AGI floor and potential 60% cash contribution constraints that begin in 2026
• Ensure contemporaneous written acknowledgements for gifts over $250 and avoid expecting the new above-the-line break to apply to donor-advised funds, supporting organizations, non-cash donations or cryptocurrency
• Charity-focused investors and fund managers should anticipate shifted donation timing and prepare for year-end liquidity variability as individuals re-time gifts between December 2025 and January 2026