By Rachael L. Dooley, CPA, MSA
Tax Manager
Passed on July 4, 2025, Public Law 119-21 (“One Big Beautiful Bill Act” or OBBBA) made a vast number of changes to the tax landscape as we knew it. Many of these changes affect the deductibility of charitable contributions and are effective for tax years beginning after December 31, 2025.
As we enter the fourth quarter of 2026, let’s explore how the deductibility of charitable contributions could affect your annual year-end tax planning.
Charitable Deduction Available for Non-Itemizers
Generally, the tax deduction for charitable contributions is only available to individuals if they itemize on their tax return (i.e., those who do not take the standard deduction).
However, beginning in 2026, individuals may claim an annual deduction of $1,000 ($2,000 for those married filing jointly) for qualified charitable contributions, even if they do not itemize.
This provides a valuable planning opportunity for the charitably inclined in 2026 and beyond. Depending on your tax bracket, an additional $1,000 or $2,000 in below-the-line deductions could amount to a few hundred dollars’ reduction in your tax bill. Make sure to keep your donation receipts and take advantage of this tax planning opportunity!
0.5% Floor for Individuals
P.L. 119-21 introduces an AGI-based floor for charitable contributions for individual taxpayers. Before any charitable contributions can be deducted, those contributions must exceed 0.5% of the taxpayer’s Adjusted Gross Income (AGI).
For a taxpayer with an AGI of $100,000, the implementation of this new 0.5% floor means that a tax deduction may only be available for charitable donations in excess of $500.
The disallowed portion is only available to be carried forward in a year where the overall AGI limit on charitable contributions is exceeded (this limit ranges from 20-60%, based on the type of donation and donee organization). In all other cases, the disallowed amount is not currently deductible or able to be carried forward to future years.
1% Floor for Corporations
Similar to the hurdle for individual taxpayers, corporations making charitable contributions may only deduct those contributions which exceed 1% of taxable income. This new rule, effective for tax years beginning after December 31, 2025, works in tandem with the previously established 10% taxable income limitation. As of the passing of P.L. 119-21, corporations are allowed a deduction for qualified donations only to the extent those donations exceed 1% of taxable income (the floor), and do not exceed 10% of taxable income (the ceiling).
Contributions disallowed by the 1% taxable income floor are only available for carryforward from years in which the 10% limitation is exceeded.
Itemized Deductions Limited to the 35% Bracket
In addition to these sections specific to charitable contributions, P.L. 119-21 implements an overall limitation on the benefit of itemized deductions for individual taxpayers.
This limitation seeks to cap the benefits of itemized deductions at the 35% tax bracket by reducing allowable deductions by 2/37ths of the lesser of:
– Total itemized deductions, or
– Taxable income subject to the 37% tax bracket
This 2/37ths limitation will only affect individual taxpayers with taxable income greater than $640,600, or $768,700 for married couples filing jointly. These are the inflation-adjusted thresholds for the 37% tax bracket in 2026.
What does this all mean?
For individuals and corporations alike, it is important to consult with your tax advisor and plan ahead. Being proactive with your charitable contributions allows for greater opportunities for below-the-line deductions. These changes to the deductibility of charitable contributions are effective for the 2026 tax year, and now is the time to determine how that affects your personal tax situation.
