Navigating the evolving landscape of charitable giving can be complex, especially with the recent changes introduced by the One Big Beautiful Bill Act (OBBBA). Whether you’re an individual donor or a corporate philanthropist, understanding the new rules around deductions, floors, ceilings, and planning strategies is essential for maximizing your impact and tax benefits. This article breaks down the latest updates, highlights practical examples, and offers actionable insights to help you make informed decisions about your charitable contributions.
Read Also: OBBBA Provisions To Impact Real Estate, High-Net-Worth Property Owners
1. Individual Charitable Deductions
The OBBBA introduces an above-the-line deduction for non-itemizers and sets a new 0.5% AGI floor for itemizers, changing how individuals can claim charitable contributions. The 60% AGI ceiling for cash gifts to public charities is now permanent. These changes may encourage larger, less frequent donations. We’ve outlined these new provisions below while providing a helpful use case for further clarity.
- Above-the-Line Deduction for Non-Itemizers: Non-itemizing taxpayers may now claim an above-the-line deduction for cash contributions to qualified public charities (excluding donor-advised funds and supporting organizations). The deduction is capped at $1,000 for single filers and $2,000 for joint filers, making permanent a temporary COVID-era provision.
- 0.5% AGI Floor for Itemizers: For those who itemize, only charitable contributions exceeding 0.5% of AGI are deductible. The amounts below this floor are permanently disallowed unless the taxpayer donates enough to exceed the AGI limit and generates a carryover.
- Example: Joe’s AGI for 2026 is $750,000. Joe makes cash charitable contributions of $20,000. Joe may deduct $16,250 in 2026 ($750,000 * 0.5% = $3,750; $20,000 – $3,750 = $16,250). Had Joe contributed in 2025, Joe would have been able to deduct the entire $20,000 contributed.
- 60% AGI Ceiling for Cash Gifts Made Permanent: The 60% AGI ceiling for cash contributions to public charities is now permanent.
2. Corporate Charitable Deductions
Corporations face a new 1% taxable income floor and a 10% ceiling for charitable deductions, with updated carry-forward rules for excess contributions. Only amounts above the floor and below the ceiling are deductible, and unused deductions can be carried forward for up to five years. Strategic planning is essential to maximize corporate giving benefits. The following provides a breakdown of these changes as well as examples of the new rules in action.
- 1% Floor and 10% Ceiling: Corporations may deduct charitable contributions only to the extent that the aggregate contributions exceed 1% of taxable income, and only up to 10% of taxable income. Amounts below the 1% floor are permanently disallowed unless the corporation donates enough to exceed the 10% ceiling, in which case both the excess and the disallowed floor amount can be carried forward for up to five years.
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- Example:
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- 2026: Nice Guy Inc. has a 2026 taxable income before charitable contributions of $1,000,000. Nice Guy Inc. makes cash charitable contributions of $200,000 in 2026. Nice Guy may deduct $90,000 in 2026 ($1M * 1% = $10,000; $1M * 10% = $100,000; amount between $10,000 and $100,000 ($90,000) is deductible). Nice Guy may carry forward the disallowed amount of $110,000 to up to five future tax years, subject to the floor and ceiling rules in future years.
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- 2027: If Nice Guy again has $1,000,000 in taxable income in 2027 and makes no charitable contributions in that year, then it may deduct $90,000 of its $110,000 carry forward (amount between 1% floor and 10% ceiling), carrying $20,000 forward to 2028.
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- 2028: If Nice Guy again has $1,000,000 in taxable income in 2028, and makes no charitable contributions in that year, then it may deduct $10,000 of its $20,000 carry forward ($1,000,000 * 1% = $10,000; $20,000 – $10,000 = $10,000). The remaining $10,000 is permanently disallowed and can no longer be carried forward.
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- Carryforward Rules: Contributions exceeding the 10% ceiling or disallowed by the 1% floor can be carried forward for five years, but only if the corporation’s contributions in a future year exceed the 1% floor and are under the 10% ceiling before taking the carryover into account.
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3. Other Notable Provisions
Substantiation requirements remain unchanged, but a new federal tax credit is available for individual contributions to state-certified K–12 scholarship organizations. Double-counting contributions as charitable deductions is not allowed. Proper documentation is still required for larger gifts. The breakdown is as follows:
- Substantiation Requirements: No major changes were made, but existing rules still apply. Written acknowledgment is required for contributions of $250 or more, and special rules apply for donor-advised funds.
- Special Provisions: A new federal tax credit is available for individual contributions to state-certified K–12 scholarship-granting organizations. However, such contributions cannot be double-counted as charitable deductions.
4. Planning Considerations
Taxpayers may benefit from “bunching” contributions into a single year to exceed new floors and maximize deductions. The new rules could reduce the tax benefit for smaller annual gifts, shifting giving strategies. Accelerating contributions may offer additional advantages.
- Bunching Contributions: Taxpayers may benefit from “bunching” charitable contributions into a single year to exceed the new floors and maximize deductions.
- Impact on Giving Strategies: The new floors may reduce the tax benefit for smaller annual gifts, potentially encouraging larger, less frequent donations.
Next Steps
The OBBBA brings significant changes to charitable contribution deductions for both individuals and corporations. With new floors, ceilings, and carry-forward rules, strategic planning is more important than ever to optimize your giving and tax benefits. GBQ is here to help you navigate these updates and make the most of your charitable impact.
If you need guidance on maximizing your charitable contributions under the new OBBBA rules, contact GBQ’s expert team of tax professionals today for personal assistance and strategic planning.
Summary:
- New 0.5% AGI floor for individual itemizers and a 1% taxable income floor for corporations, which must be exceeded before charitable contributions are deductible.
- The 60% AGI ceiling for cash gifts to public charities is made permanent.
- Non-itemizers can now claim an above-the-line deduction of up to $1,000 ($2,000 joint) for cash gifts to public charities.
- Carry-forward rules are updated, and substantiation requirements remain in place.
- Potential Action Item: Taxpayers should consider accelerating contributions into 2025, and for future years, consider ‘bunching’ contributions into a single tax year to increase potentially deductible amounts. Corporate taxpayers, under certain circumstances, can approve donations in 2025 and delay payment until early 2026.
By Emma Giroux, CPA, Senior Manager, Tax & Advisory, Zach Montgomery, CPA, Manager, Tax & Advisory, and Mark Silvaggio, JD, CPA, Director, Tax & Advisory
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