With the holiday season in full swing, tackling the ins and outs of the new tax law might not be first on your list.
We get it. Trying to decipher the “right” decisions for this particular year-end, and the best plans for the coming years, can feel like the quest to find the perfect gift for an especially exacting loved one. Throw in a variety of income phaseouts, time limitations, and nuanced eligibility exclusions, and it’s no wonder that many are feeling even more overwhelmed than usual at this time of year.
But remember, knowledge is power, and understanding the law’s key points on charitable contributions will help you make smart decisions to maximize impact and tax advantages.
As much as we would like to, we can’t help you get every item crossed off your year-end to-do list, but we can shed light on tax-smart strategies to help you make the most of your charitable giving—and do the most good for the community—under the new tax law.
One fundamental consideration is that while the new law brings more stability to certain aspects of estate and charitable planning (at least for now), its implications will differ significantly from person to person.
What to know…
More Certainty for (Certain) Tax Planning
Much handwringing, head-scratching, and number-crunching has been afoot for years over the looming 2025 expiration, or “sunset,” date for key provisions of the 2017 Tax Cuts and Jobs Act that affect estate, tax, and charitable planning. What would happen to these provisions? We now have some answers:
- Standard Deduction Remains High. A higher standard deduction is permanent. (And by permanent, we mean no sunsetting provision is included. Changes under future laws are always on the table.) For 2025, the standard deduction is $15,750 for individuals and $31,500 for married couples filing jointly. Through 2028, those ages 65 and older will retain the “bonus” deduction of $6,000 (subject to income phaseout)—whether itemizing or not. With these high amounts indexed for inflation on an annual basis going forward and potential “extras,” even fewer taxpayers will itemize.
- Income Tax Rates Capped at 37 percent. The highest income tax rate will remain at 37 percent (no return to 39.6 percent, or the much higher rates of the more distant past).
- Deduction Limit for Cash Gifts Stays at 60 percent of Adjusted Gross Income (AGI). Cash gifts to public charities (like The New York Community Trust) will remain deductible in an amount up to 60 percent of AGI, up from the pre-2018 level of 50 percent. (Also remaining in place is the 30 percent limit on gifts of appreciated property to public charities, and the five-year carry-forward for contribution amounts exceeding the limits in a given year.)
- Estate/Gift Tax Exemption Further Increases. Beginning in 2026, each person will be able to transfer assets through estates and gifts tax-free up to $15 million ($30 million for a married couple), and these exemption amounts will be indexed for inflation each year. For a bit of historical perspective, the exemption amount for an individual was $5,490,000 in 2017, $3,500,000 in 2009, and $675,000 (to confirm, no zeros or commas missing) in 2001.
New for 2026 – Opportunities and Challenges for Charitable Giving
- Charitable Deduction for Non-Itemizers. Even for those who don’t itemize, there is an annual income tax deduction for cash gifts up to $1,000 to public charities. (Exceptions include donor-advised funds; however, many funds at The New York Community Trust, like the Community Needs Fund, are eligible recipients.) Married couples filing jointly can deduct up to $2,000.
- Deduction Floor for All Itemizers (and Corporations). For individual taxpayers, only charitable contributions exceeding 0.5 percent of adjusted gross income will be deductible. This reduces charitable deductions for all itemizers, and may even undo them completely for some. The deductibility “floor” is 1 percent of taxable income for corporate charitable contributions.
- Deduction Ceiling for Itemizers in the Highest Income Tax Bracket. For top earners who find themselves in the 37 percent tax bracket (for 2025, beginning at taxable income of $626,351 for single filers and $751,601 for joint filers), the deductions for charitable contributions are capped at 35 percent. The income tax savings is still there, but its value will be limited to $0.35, rather than $0.37, for each dollar of itemized deductions.
What to do…
Maximizing deductions will require different strategies for different people, but there are opportunities for everyone to have a meaningful impact in support of their favorite charities:
- “Bunch” or “bundle” charitable gifts in certain years to give a larger amount, rather than spreading contributions evenly over multiple years. The goal is to maximize eligible itemized deductions in a single year. Donor-advised funds (DAFs), like those set up through The New York Community Trust, are very useful tools for this strategy. Making larger gifts in a single year to a DAF (increasing the total contributions that qualify as itemized charitable deductions to exceed the standard deduction amount) lets you continue to keep up regular support for your favorite charities over time by recommending grants from the initial contribution in subsequent years.
A bunching strategy could be especially beneficial in 2025, before the charitable deduction limitations take effect and given that this year the “SALT” (State and Local Tax) deduction is returning to higher levels for many taxpayers, though only for a limited time and subject to a quick income phaseout. Taking advantage of these converging opportunities can have a powerful effect on your tax planning and ability to champion the causes you care about.
- Deploy IRA qualified charitable distributions (QCDs) to maximum advantage for those ages 70½ and over, even for non-itemizers. Direct distributions from IRAs (up to $108,000 in 2025, increasing to $111,000 in 2026) to qualified charities are not included in the IRA owner’s income calculation and do count towards the required minimum distribution (RMD). QCDs can play a very useful role in avoiding income phaseouts for other benefits (like the $6,000 “senior bonus” deduction and SALT cap increase noted above) and help put to good work an otherwise highly taxable asset.
Donor-advised funds are not eligible QCD recipients, but The Trust’s Community Needs Fund, which supports nonprofits responding to pressing local needs, can— and does—receive QCDs from many dedicated supporters.
- Naming a charity as a beneficiary of your retirement plan can help maximize the overall amount you’ll pass along to family, friends, and favorite causes. It’s an opportunity to make a lasting impact, create an estate tax charitable deduction, and avoid income taxes for beneficiaries on tax-deferred assets.
Sorting through the new rules can be daunting, but it’s worth it to make a meaningful difference for the causes you care about. Talk with your personal advisors to make sure you’re optimizing your giving potential, and feel free to reach out to our expert team for questions about your charitable planning. We’re here to help you be a force for good—today and for future generations.
Audra Lewton, Esq., is the director of planned giving at The New York Community Trust. Contact her with questions about charitable giving strategies at alewton@thenytrust.org or (212) 686-2461.
This material was developed for The New York Community Trust. It is published for informational purposes only and with the understanding that it is not legal, accounting, or other professional advice.
