Deciding on Year-End Charitable Donations: Timing is Everything

Should You Donate Now or Wait?

As the year draws to a close, many individuals are contemplating whether to make their charitable contributions before December 31 or defer them until the new tax year. The decision hinges on the nuances of tax law changes effective from January 1, 2026. This landscape is especially relevant for high earners who itemize their deductions versus those who rely on the standard deduction. Let's unpack what this means for charitable giving.

“Timing matters a lot this year,” says Amie Kuntz, chair of the individual and self-employed tax committee at the American Institute of CPAs.

Understanding Tax Law Changes

The recent tax reforms introduce two key adjustments impacting tax deductions for charitable donations. For individuals who itemize their deductions:

• New Floor: A threshold of 0.5 percent of one's adjusted gross income (AGI) has been established. Donations can only be deducted beyond this floor. For example, a taxpayer with an AGI of $250,000 can only deduct contributions exceeding $1,250.
• Lower Cap for High Earners: Filers in the top tax bracket will see their deductions capped from previous years, reducing tax savings from 37 cents per dollar to 35 cents per dollar starting in 2026.

Implications for Charitable Contributions

What does this mean for those who donate regularly? Making contributions this year can maximize both the deduction before the new regulations take effect and the personal tax benefits tied to those donations.

Calculating Benefits

Consider an example involving a high-income taxpayer wishing to donate $30,000:

Under the current law, this taxpayer, earning $1 million, can fully deduct the donation, potentially saving $11,100 in taxes. However, under new rules, the same contribution would yield a mere $8,750 in tax savings, thanks to the new deduction floor and lowered cap.

Strategic Giving: Bunching Contributions

For those itemizing their deductions, a method known as “bunching” can be particularly effective this year. This refers to making several years' worth of planned donations in one tax year to exceed the AGI floor.

“This year is a great year to bunch, if you can afford to do it,” explains Michael Aloi, a wealth management adviser.

Alternative Giving Methods

If you're uncertain about where to direct your contributions, consider utilizing donor-advised funds. These accounts provide an immediate tax benefit while allowing you time to decide which charities best align with your values.

Deadline Considerations

While it's still possible to open a donor-advised fund for 2025, financial service firms are often busy during year-end, so be proactive. Donations via check must be postmarked by December 31 to qualify for the current tax year.

For Non-Itemizers: New Deductions Available

Fewer individuals are itemizing their deductions following the 2017 tax law changes. However, for those who take the standard deduction, significant news is on the horizon. Starting in 2026, standard deduction filers can also deduct direct charitable donations of up to $1,000 for singles and $2,000 for joint filers.

The Importance of Informed Giving

For those considering last-minute donations, it's worth weighing both immediate tax benefits and the potential to support causes important to you effectively. Sites such as Charity Navigator can help ensure your contributions are well-utilized.

Key Takeaways

Your timeline for charitable giving may need adjustments based on personal tax circumstances and strategic financial planning. Understanding how changes in tax law will influence your contributions can enhance both your philanthropic impact and financial outcomes.