Important tax info for holiday donors

THE WOODLANDS, TX – In the ever-changing world of the United States Tax Code, even altruists and philanthropists will be affected come the new year with a new set of deduction rules that could adversely affect how they give. We’re letting you know now so that you can make some donation decisions before the end of this year before the changes go into effect.

In 2026, tax breaks for donations will change with the introduction of a new deduction for non-itemizers and new limitations – a floor and a cap – for those who itemize deductions.

If you typically itemize your deductions – or plan to starting next year – the following changes will apply:

• There will be a new 0.5% Adjusted Gross Income (AGI) floor – You can only deduct the portion of your total charitable contributions that exceeds 0.5% of your AGI. For example, if your adjusted gross income is $100,000, the first $500 of your donations will not be deductible; a household with an AGI of $200,000 must make at least $1,000 in donations before any amount is deductible.

• There will be a reduced tax benefit for top earners – For taxpayers in the highest marginal tax bracket (37%), the value of the charitable deduction will be capped, providing a tax benefit as if they were in the 35% bracket (essentially, the tax benefit of itemized charitable deductions will be capped at 35 cents per dollar donated).

• There will be a permanent 60% AGI limit for cash gifts – The temporary rule allowing cash gifts to public charities to be deducted up to 60% of adjusted gross income has been made permanent, providing flexibility for large contributions.

If you typically use the standard deduction (instead of itemizing), a new universal ‘above-the-line’ deduction for cash donations will be available to you. With the 2026 rules, you will be able to deduct up to $1,000 if filing as a single individual or up to $2,000 if married filing jointly. A heads up that this deduction only applies to cash contributions made directly to qualified public charities, and it specifically excludes contributions to donor-advised funds (DAFs) and private foundations.

According to some experts, taxpayers may consider strategies such as ‘bunching’ donations (making a larger gift in 2025 to receive a larger deduction before the 2026 floor takes effect, then using a DAF to distribute funds over subsequent years) or utilizing Qualified Charitable Distributions (QCDs) from an IRA for donors age 70-and-a-half or older, which remain an effective tax-planning tool unaffected by these changes. Also to keep in mind, donating appreciated securities remains a highly tax-efficient strategy to avoid capital gains tax.

Woodlands Online encourages you to reach out to a tax or financial advisor, and/or talk to officers of your nonprofit organizations and charities of your choice, to decide the best bang for your philanthropic buck before you ring in the new year.