charitable chit-chat

There are tons of reasons to give to charity. There are a couple of reasons to give to charity in 2025 if you itemize your deductions – a floor and ceiling.

The Floor – Beginning in 2026, itemizers can only deduct the portion of annual charitable donations that exceeds 0.5% of adjusted gross income (AGI). You may be thinking that’s a small hurdle, but a hurdle, nonetheless. For example, a donor making a $5,000 charitable gift with an AGI of $200,000 will only be able to deduct $4,000. ($200,000 x 0.5% = $1,000; $5,000 - $1,000 = $4,000).

The Ceiling - Beginning in 2026, itemizers in the highest tax bracket (37%) will lose a portion of all their itemized deductions, including charitable donation deductions and other itemized deductions like state and local taxes and mortgage interest. The formula determining the amount disallowed is equal to 2/37 multiplied by the lesser of (a) the total amount of itemized deductions claimed for the year or (b) the amount of income being taxed at the highest marginal rate. The goal of this limit is to cap annual deductions at 35%, rather than 37%.

There is some good news for 2026 and beyond. If you have been using your IRA to make charitable gifts, these new rules will not have an impact on your gifting. Also, the 60% AGI limitation for cash gifts to specific charities will still be in place. We will cover more good news for non-itemizers in a separate notice.

Traditional IRAs have been “designed” as live-on assets, where, ready or not, they morph from savings account to spending account when you reach a given age (currently 73). There are all these technical rules for when and what size payments (known as required minimum distributions or RMDs) must be taken for “retirement” – the “R” in IRA – whether you’re retired or not. In fact, there’s an additional tax for failure to take what’s required when it isn’t taken. There’s a chance that these payments may not be needed or wanted even though required.

There is good news. Traditional IRAs have also been “designed” as give-on assets. Whether you are an owner or a beneficiary of a traditional IRA, these accounts may be used for tax efficient charitable gifting once you reach age 70½ (but not a day sooner). These unique traditional IRA charitable gifts are known as qualified charitable distributions or QCDs and, not unlike RMDs, have a host of technical rules as well. When done properly, the amount gifted this way is excluded from gross income, thereby reducing adjusted gross income (AGI). That’s great news for individuals looking to manage AGI for things like the income taxation of Social Security benefits and the premium payments for Medicare. Here’s last year’s take from IRS on its great idea - https://www.irs.gov/newsroom/give-more-tax-free-eligible-ira-owners-can-donate-up-to-105000-to-charity-in-2024

The One Big Beautiful Bill (OB3) has ushered in changes to the corporate charitable donation rules, but these changes do not take effect until 2026. Giving in 2025 is under the existing rule framework, so it should look familiar. Here’s a preview of what changes in 2026.

A New 1% Floor – Beginning in 2026, corporations can only deduct charitable contributions that exceed 1% of their taxable income. Donations below that threshold won’t be deductible at all. By way of example, a corporation with $1 million in taxable income will need to give more than $10,000 to take a charitable deduction (and only donations above that amount will be eligible for a charitable deduction).

The Same Ceiling, but with the New Floor – The ceiling on charitable deductions (that allows corporations to deduct up to 10% of taxable income) will still apply in 2026. In that year, however, both the new 1% floor and the existing 10% ceiling will apply simultaneously, adding additional math to mix.

Some good news – any disallowed amounts MAY be carried. The excess above the 10% ceiling can be carried forward for up to five years. The nondeductible amount below the 1% floor, however, may only be carried forward in a future year in which donations exceed the 10% ceiling. And there’s the more math and perhaps the benefits of bunching gifts.

Coming soon!