Giving back to causes you care about is a deeply rewarding experience. It’s a chance to support your community and make a meaningful impact. A significant benefit of this generosity is the potential to lower your tax bill. However, with notable changes to the tax code taking effect this year, planning your contributions strategically is more important than ever.
The “One Big Beautiful Bill,” signed into law, introduces new limitations on charitable deductions, effective in 2026. This guide will walk you through these changes and introduce powerful strategies, like using Donor Advised Funds (DAFs) and contributing appreciated securities, to maximize your tax benefits now.
Understanding the 2026 Tax Law Changes
1. A New Floor for Deductibility
Effective January 1, 2026, taxpayers who itemize deductions will only be able to deduct charitable donations that exceed 0.5% of their adjusted gross income (AGI). For example, if your AGI is $1,000,000, the first $5,000 of your donations will not be deductible. A $100,000 gift will only yield a $95,000 deduction.
2. Tax Benefit Limitation
Previously, a taxpayer in the highest tax bracket (37%) received a 37% tax benefit from their itemized deductions. Starting in 2026, this benefit will be capped at 35%, even if your income tax rate remains at 37%.
Consider a taxpayer with a $1,000,000 AGI who donates $100,000. In 2025, this donation would have generated a $37,000 federal tax benefit. In 2026, that same donation will now first be reduced by the $5,000 AGI floor, and the remaining $95,000 would be subject to the 35% benefit cap, resulting in a tax benefit of only $33,250. That’s a nearly 10% reduction in tax savings for the same level of generosity.
Donor Advised Funds (DAFs)
A Donor Advised Fund is an excellent tool to assist with your charitable giving and the timing of the deductions to maximize the benfits. A DAF is like a personal charitable savings account. You contribute to the fund now, receive an immediate and full tax deduction for the current year (subject to contribution limits discussed later), and then recommend grants to your favorite charities over time.
The Ultimate Win-Win: Donating Appreciated Securities to a DAF
Layering another strategy on top of a DAF can make your contribution even more powerful. Instead of donating cash, consider contributing long-term appreciated securities—such as stocks, bonds, or mutual funds—that you have held for more than one year. This method provides a double tax benefit.
First, you can generally deduct the full fair market value (FMV) of the securities at the time of the donation. Second, you completely avoid paying the capital gains tax you would have incurred if you had sold the assets first. The charity (or the DAF) can then sell the securities without paying capital gains tax, meaning the full value of your gift goes toward its mission.
This is a highly efficient way to give. You eliminate a significant tax liability from your portfolio while supporting the causes you believe in. It is critical to note that this strategy only applies to securities held for more than one year. Donations of short-term holdings are typically limited to your cost basis, not the fair market value.
Navigating Contribution Limits and Record-Keeping
While planning your giving strategy, it’s important to be aware of IRS limits and documentation requirements.
Contribution Limits
The IRS sets annual limits on how much you can deduct based on your AGI.
- Cash Contributions: Generally deductible up to 60% of your AGI.
- Appreciated Securities: Deductible up to 30% of your AGI when given to public charities (including DAFs).
If your donations exceed these limits, you can carry over the excess amount for up to five years. Any carryover amounts used in 2026 and beyond will be subject to the new, less favorable rules.
Essential Documentation
The IRS requires strict proof for every contribution.
- Donations of $250 or more: You must obtain a contemporaneous written acknowledgment from the charity or DAF sponsor. This receipt must state the amount of the contribution (or a description of the securities) and confirm that you received no goods or services in return.
- Donations over $5,000: For non-cash assets, you must complete Form 8283 and, in many cases, obtain a qualified appraisal.
Charitable giving is more than a tax strategy. It’s an opportunity to create meaningful change while aligning your finances with your values. Proactive planning can help you give with confidence, knowing you’re supporting the organizations and causes that matter most to you, now and in the years to come. By staying informed and working with knowledgeable advisors, you can make the most of your generosity and leave a lasting impact on both your community and your legacy.
Need additional charitable giving guidance? Contact one of our tax advisors today.
