Large Magnificent Monetary Measure Up for Scrutiny: Will Public Continue Contributions?
In a significant shift for American philanthropy, the recently passed One Big Beautiful Bill (OBBB) has introduced changes to the tax benefits tied to charitable giving.
The bill reinstates a universal above-the-line charitable deduction for people who don't itemize, allowing individuals to deduct up to $1,000 and married couples filing jointly up to $2,000. However, for high earners and business owners, the changes may require a reevaluation of their giving strategy.
A couple with a million dollars in adjusted gross income (AGI) would need to donate $605,000 to receive the full tax benefit under the new law, due to the new income thresholds. High-income donors will now get a smaller tax break, deducting only 35% of their donation instead of 37%.
Businesses can only deduct gifts that are more than 1% of their income, a change that may encourage businesses to be more strategic in their charitable giving. On the other hand, the new rule for itemizers puts a 0.5% floor on charitable deductions, meaning only the portion of donations exceeding 0.5% of adjusted gross income is deductible starting in 2026.
Despite these changes, Americans continue to give at high levels, even in challenging times. In 2021, 74% of U.S. adults donated to non-religious causes, according to Gallup. The decline in charitable giving in 2022, by 10.5% - the largest drop in decades - may not be directly attributed to the OBBB, as the bill's specific consequences for donations from high-income donors are not detailed in the available sources.
The return of the universal charitable deduction may encourage broader participation in giving, particularly among non-itemizers. It may also reinforce the habit for households that already give, even if the amount isn't huge. For middle-income Americans, the charitable donation deduction threshold is $1,500.
Charitable trusts and family foundations offer flexibility and help preserve a philanthropic legacy. Non-cash gifts, such as appreciated securities, may still provide strong tax advantages under the new rules. Employer matching programs or community fundraisers can help stretch the impact of donations, even with modest tax benefits.
To have the biggest impact with your giving, clarify your top priorities and discuss your philanthropic goals with family or advisers. Now is an ideal time to make philanthropy a shared value within families, involving the next generation in giving decisions and conversations.
High-net-worth (HNW) donors are motivated to give beyond tax deductions. Most affluent households give to charity because of personal values and beliefs, not tax incentives. Therefore, the cultural norm of giving is strong and not easily undone by tax changes.
In conclusion, while the OBBB has introduced changes to the tax benefits tied to charitable giving, the cultural norm of giving in the U.S. remains robust. High-income donors and businesses may need to reevaluate their giving strategy, but the importance of philanthropy as a means of making a positive impact on society is clear.
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