How to Maximize Your Charitable Giving Under New Tax Rules: A Step-by-Step Guide for 2026 and Beyond

The One Big Beautiful Bill Act, signed into law in July 2025, introduces significant changes to charitable giving tax benefits starting in 2026. As your trusted tax advisor, KHA Accountants has prepared this comprehensive guide to help you understand these changes and implement strategic giving approaches that preserve your tax advantages while supporting the causes you care about.

Understanding the New Landscape: What Changed and When

Before diving into strategies, it's crucial to understand the timeline and scope of these changes:

• 2025: Current rules still apply - this is your transition year to accelerate strategies
• 2026 and beyond: New rules take effect, fundamentally changing how charitable deductions work
• 2027: Additional K-12 scholarship credit becomes available

Step 1: Determine Which New Rules Apply to Your Situation

For Standard Deduction Filers (90% of taxpayers)

New Benefit: You can now deduct charitable gifts even without itemizing

• Single filers: Up to $1,000 annually
• Married filing jointly: Up to $2,000 annually
• Important limitation: Gifts to donor-advised funds, supporting organizations, and private foundations don't qualify

For Itemized Deduction Filers (Higher-income taxpayers)

New Challenges: Two significant limitations now apply

• 0.5% AGI Floor: Only gifts exceeding 0.5% of your adjusted gross income are deductible
• 35% Benefit Cap: If you're in the 37% tax bracket, your deduction value is capped at 35%

For Corporate Donors

New Floor: Charitable contributions are only deductible if they exceed 1% of taxable income

• 10% annual cap remains unchanged
• 5-year carryforward for unused deductions continues

Step 2: Calculate Your Personal Impact

Individual Impact Assessment

Use these calculations to understand how the new rules affect your giving:

For Itemizers - Calculate Your Floor Amount:

• Multiply your AGI by 0.005 (0.5%)
• Example: $300,000 AGI × 0.005 = $1,500 floor
• Only gifts above $1,500 would be deductible

For High Earners - Estimate Reduced Benefit:

• If you're in the 37% bracket, your effective deduction rate drops from 37% to 35%
• Example: $10,000 gift saves $3,500 instead of $3,700

Corporate Impact Assessment

Calculate Your Corporate Floor:

• Multiply taxable income by 0.01 (1%)
• Example: $500,000 taxable income × 0.01 = $5,000 floor
• Only contributions above $5,000 would be deductible

Step 3: Choose Your Optimal Strategy Based on Your Profile

Strategy A: Accelerate Giving in 2025 (For All Donors)

Best for: Anyone planning major charitable gifts

Action steps:

• Review your 2026-2028 planned giving
• Since limitations apply beginning in 2026, consider making 2-3 years of gifts in 2025
• Maximize deductions under current, more favorable rules
• Document your acceleration strategy for tax purposes

Strategy B: Implement Gift Bunching (For Itemizers)

Best for: Donors whose annual giving falls below the 0.5% AGI threshold

Action steps:

1. Calculate your typical annual giving amount
2. Determine if it exceeds your 0.5% AGI floor
3. If not, combine 2-3 years of planned gifts into one tax year
4. Use donor-advised funds to maintain annual distribution to charities
5. Alternate between bunching years and standard deduction years

Strategy C: Leverage Donor-Advised Funds (DAFs)

Best for: Donors implementing bunching strategies or wanting flexibility

Action steps:

1. Open a donor-advised fund account
2. Make large, tax-deductible contributions in bunching years
3. Recommend grants to charities annually from the fund
4. Invest fund assets for potential growth between contributions and grants

Key advantage: Immediate tax deduction when you contribute, flexible timing for charitable distributions

Strategy D: Maximize Non-Cash Giving

Best for: Donors with appreciated assets

Action steps:

1. Identify long-term appreciated securities, real estate, or other assets
2. Gift assets directly to charity to avoid capital gains tax
3. Claim full fair market value deduction (subject to new floor rules)
4. Use cash for personal investments instead of charitable giving

Step 4: Coordinate with Estate and Business Planning

Estate Planning Integration

New opportunity: Estate tax exemption increased to $15M per person ($30M per couple)

Action steps:

• Review current estate plan with increased exemptions
• Consider lifetime charitable gifts to reduce taxable estate
• Explore charitable remainder trusts for large gifts
• Update beneficiary designations for retirement accounts

Business Planning Coordination

For business owners:

• Align corporate giving with personal giving strategies
• Consider timing charitable contributions with high-income years
• Explore employee matching programs to leverage corporate deductions
• Review sponsorship arrangements as business expense alternatives

Step 5: Take Advantage of New Opportunities

Universal Deduction for Everyone

Action steps for standard deduction filers:

1. Budget for $1,000 (single) or $2,000 (joint) in annual charitable giving
2. Focus gifts on public charities, not donor-advised funds
3. Track donations carefully for tax documentation
4. Consider monthly giving to spread impact throughout the year

K-12 Education Credit (Starting 2027)

For families with school-age children:

• Research qualified K-12 scholarship organizations in your area
• Plan up to $1,700 in contributions for tax credit (dollar-for-dollar tax reduction)
• Coordinate with other education tax benefits

Step 6: Implementation Timeline and Action Items

Before December 31, 2025

• Meet with your KHA tax advisor to model different scenarios
• Accelerate planned 2026-2027 charitable gifts
• Set up donor-advised fund if implementing bunching strategy
• Review and potentially donate appreciated assets

2026 Tax Planning

• Implement your chosen bunching or standard deduction strategy
• Track charitable giving carefully under new floor rules
• Coordinate corporate and personal giving strategies
• Monitor AGI to optimize floor calculations

Ongoing Strategy Management

• Review and adjust strategies annually
• Monitor changes in income that might affect floor calculations
• Reassess charitable priorities and distribution timing
• Stay informed about potential future legislative changes

Making the Most of Challenging Changes

While these new rules create complexity, they also present opportunities for strategic taxpayers. The key is proactive planning and professional guidance. Remember that charitable giving should ultimately align with your values and philanthropic goals, not just tax benefits.

Your next steps:

• Schedule a consultation with KHA's tax planning team to model scenarios specific to your situation
• Begin implementing your chosen strategy before the 2025 tax year ends
• Set up systems to track your charitable giving more carefully under the new rules

At KHA Accountants, we're here to help you navigate these changes while preserving both your tax benefits and your ability to support the causes that matter to you. Contact our office to discuss how these strategies can work within your overall financial plan.