Charitable Giving 2025
With Thanksgiving around the corner, the charitable giving season is upon us and changes are afoot. Of course, most people give because they want to do good, but the tax rules around philanthropy have always been an added sweetener. Although nothing has changed for 2025, the “OBBBA” tax bill will usher in three major alterations to charitable giving in 2026, two of which will limit the tax benefit of charitable giving for taxpayers who itemize their deductions.
For those in the highest tax bracket (37 percent), there will be a new cap on charitable deductions, from 37 cents on the dollar to 35 cents on the dollar. Additionally, all itemizers will need to give more than 0.5 percent of their AGI to start claiming a deduction. For example, with an Adjusted Gross Income (AGI) of $200,000, total gifts must be more than $1,000 before being deductible.
To get ahead of these new tax rules, one strategy to consider before year end is to open and fund a Donor Advised Fund (DAF). For the uninitiated, DAFs allow you to contribute cash, appreciated assets (stocks, mutual funds, exchange traded funds (ETFs) and in some cases, private equity or hedge fund interests, crypto, and restricted stock), take an immediate tax deduction on the value of the contribution, and then grant to an eligible IRS-qualified public charity over months or years in the future.
I recently interviewed Fred Kaynor, Managing Director of DAFGiving360, a DAF launched by investment giant Charles Schwab. Kaynor says that the “give now, decide later,” aspect of DAFs provides donors with “the flexibility to make year-end tax moves before December 31, without feeling rushed to pick specific organizations.” While you decide, the money in the DAF can be invested with the potential to grow tax-free. He notes that for those in a higher tax bracket, “2025 might be your best window to make larger gifts and take full advantage of the current deduction limits."
The third change to charitable giving that will occur next year will provide a tax benefit to those who claim the standard deduction. In 2026, standard filers will be entitled to a $1,000 charitable deduction ($2,000 for joint filers), on top of the statutory standard deduction amount. The deduction applies to cash gifts only (not securities) that go directly to a qualifying public charity (not to donor-advised funds). If you usually take the standard deduction and want to give this year, you will not be entitled to a tax benefit.
SCAM ALERT!
Unfortunately, this time of year is a gold mine for bad actors. Charitable scams are ubiquitous, so your best bet is to be defensive and be on your toes before parting with your hard-earned dollars. Here are some of the best practices when it comes to charitable giving.
Be alert to fraud. Scammers use names that sound like well-known charities to confuse people. Ask for the charity's name, website and mailing address so you can independently confirm the information by using the IRS Tax Exempt Organization Search tool to verify its legitimacy. Avoid charities that ask for donations by gift card or by wiring money.
Pay with traceable methods. The safest way to pay is to use a credit card or send a check.
Don't overshare. Personal information is valuable to criminals. Never disclose Social Security numbers, credit card numbers, personal identification numbers or passwords unless you are sure that the organization is legit.
Resist pressure. Scammers who pose as charitable do-gooders often demand immediate payment, while legitimate charities are happy to get a donation at any time. If you get the hard sell, walk away.
Beware of complicated schemes. The IRS has warned of a new scam that targets higher-income filers. “Charitable LLC” schemes encourage people to create a limited liability company (LLC) for a fee, then fund it with cash or securities. The scammer will then provide documents that purport to transfer membership in the LLC to a charity. Confused? You should be, stay away!