Tax Law Changes – Time to study up?
Spark Notes is a monthly blog post, providing relevant information to current and future donors and fundholders.
The One Big Beautiful Bill Act was signed into law by President Trump on July 4, 2025, after the House of Representatives approved the Senate’s changes to H.R. 1, which passed the House by a narrow margin in May.
The OBBBA, with nearly 900 pages of provisions, reshapes policy across major sectors of the U.S. economy. Included in the OBBBA are several provisions that impact philanthropy. Three major insights are of particular importance to the Community Foundation. We help donors, fund holders, nonprofits, attorneys, CPAs and financial advisors navigate charitable planning opportunities.
(Notably, the OBBBA omits several provisions that appeared in previous versions of the legislation. These provisions include a proposed increase to the net investment income tax on private foundations.)
Insight #1: Standard deduction goes higher
What’s in the OBBBA?
The new law makes permanent the standard deduction increases under the Tax Cuts and Jobs Act of 2017 (TCJA), increasing the standard deduction for 2025 to $15,750 for single filers and $31,500 to taxpayers who are married and filing jointly. The new law also expands the “bonus” deduction for taxpayers 65 and older through 2028.
Under the new law, individuals who itemize may take charitable deductions only to the extent the charitable deductions exceed 0.5% of adjusted gross income. Furthermore, taxpayers in the top bracket can only claim a 35% tax deduction for charitable gifts instead of the full 37& that would otherwise apply to their income tax rate. Note also that the final bill extended the 60% of adjusted gross income contribution limitation for cash gifts made to certain qualifying charities.
What does this mean for charitable giving?
With even fewer taxpayers eligible to itemize and deductions capped for high-income earners, it’s likely we’ll see the continuing, chilling effect on charitable giving that occurred through TCJA.
What can you do?
If you regularly support charities, continue to do so whether or not you’re benefiting from a tax deduction. Our community needs you, now more than ever. If you’re a nonprofit, attorney, CPA or financial advisor, remember–people do not give to charity solely for tax deductions. Keep in mind that many other factors motivate charitable giving, and philanthropy is an important priority for many families. (This article in the Stanford Social Innovation Review has stood the test of time.)
Insight #2: Deduction for non-itemizers
What’s in the OBBBA?
The new law includes a provision, effective after 2025, allowing non-itemizers to take a charitable deduction of $1,000 for single filers. Charitable deductions for taxpayers who are married and filing jointly are $2,000. As has been the case in the past, gifts to donor-advised funds are not eligible. Unlike a previous (but smaller) similar provision, though, this law is not set to sunset.
What does this mean for charitable giving?
After the TCJA went into effect, households that itemize deductions dropped to under 10%. Parallel to this trend, the number of U.S. adults who give to charity in any given year has dropped over the last 20 years from nearly two-thirds to less than half. Against this backdrop, the OBBBA’s deduction for non-itemizers has the potential to re-motivate charitable giving among a significant number of households.
What can you do?
Now is the time to review your charitable giving plans and support the causes you love. This is especially important if you are early in your career and not yet itemizing deductions. If you’ve already established a fund or already working with the Community Foundation, please reach out. We can help you make the most of the new tax laws, and even get your children and grandchildren involved. If you’re a nonprofit, now is the time to attract and engage brand new donors. If you’re an attorney, CPA, or financial advisor, talk about charitable giving with your clients who don’t itemize. A $1000 or $2000 deduction could be just the motivation they need to begin a journey of philanthropy.
Insight #3: No sunsetting estate tax exemption
What’s in the OBBBA?
For affluent taxpayers and the attorneys, CPAs, and wealth managers advising them, the last couple of years have been turbulent. The looming possibility that TCJA’s increase to the estate tax exemption would sunset by 2026 created a lot of stress. Finally, there is clarity: Under the OBBBA, the sunset will not happen. The new law makes permanent the increase in the unified credit and generation-skipping transfer tax exemption threshold. The 2025 exemption is $13.99 million for single filers and $27.98 million married filing jointly. In 2026, these numbers increase to $15 million and $30 million respectively.
What does this mean for charitable giving?
Purely estate tax-based incentives to give to charity continue to apply only to the ultra-wealthy. This behavior likely resulted in a continuation of the taxpayer behavior triggered by the TCJA. In other words, most people will give to charity for reasons other than a tax deduction.
What can you do?
There is no guarantee that the estate tax exemption will stay high forever. As families work with their financial advisors, the next two years are an important window to plan ahead. The upshot of the new law is that high net-worth taxpayers now have more time to thoughtfully consider estate planning strategies, including charitable giving. For nonprofit organizations, this means continuing to focus on long-term planned giving strategies is wise.
| The team at the Community Foundation is honored to serve as a resource and sounding board as you build your charitable plans and pursue your philanthropic objectives for making a difference in the community. This newsletter is provided for informational purposes only. It is not intended as legal, accounting, or financial planning advice. Please consult your tax or legal advisor to learn how this information might apply to your own situation. |
