full $ 10,000 from their taxable income. But next year, the same income level and donation amount will allow only a $ 9,500 deduction, because of the 0.5 % floor( that is, 0.5 % of $ 100,000 is $ 500, which is the amount of the donation that cannot be deducted from taxable income in 2026 and thereafter).
“ Charitably inclined clients who itemize and are interested in maximizing the tax benefits of their donations will receive a larger tax deduction for contributions in 2025” than in 2026, says Corey Pederson at Crewe Advisors in Salt Lake City.
At the same time, starting next year, the upper limit for charitable deductions is 35 % of MAGI— even for clients at the highest tax bracket of 37 %. This year, those wealthiest Americans can still deduct the maximum of 37 % of their income for charitable donations.
Therefore, experts say that clients who are considering making large gifts should act before year’ s end.
What’ s more, unlike smaller, non-itemized donations, large itemized deductions can be non-cash. So experts are recommending a hefty dose of spring cleaning this summer and autumn.“ Some taxpayers may want to clear out the closets and donate clothes, household items, toys and books to their local Goodwill or Salvation Army,” says Richard Pon, a CPA and certified financial planner in San Francisco.
Another option, he says, particularly for clients who want to make annual donations this year and next( and possibly thereafter), is to make an extra large contribution to a donor-advised fund before year’ s end. The entire amount can be deducted this year, though only half of it, say, will go to whatever charity they choose in 2025 and the other half will go to a charity in 2026. In this case, they will forgo any charitable deduction next year.
Other Changes
There are other new deductions starting this year that might influence clients’ charitable planning, Pon says. For example, the standard deduction increases from $ 15,000 to $ 15,754 for single filers and from
$ 30,000 to $ 31,500 for joint filers, with annual inflation adjustments. There is a deduction for auto loan interest on new cars up to $ 10,000. And, through 2028, clients who have reached age 65 can claim an extra $ 6,000 deduction on top of the standard deduction( and it’ s $ 12,000 for married couples if both spouses are 65 or older), though the deduction is cut by 6 % for every dollar over the threshold for clients with modified adjusted gross income of $ 75,000( or $ 150,000 for joint filers); at $ 175,000 of MAGI($ 250,000 for joint filers), the senior deduction disappears entirely.
Whatever the deduction, the more money clients get to keep, the more they might give to charity.
But perhaps the best example is the increase in deductions for state and local taxes, known as SALT deductions, which go into effect this year through 2029. The limit on SALT deductions is raised from $ 10,000 to $ 40,000 this year for all but the wealthiest taxpayers, whether filing jointly or singly, and that increases 1 % each year after this until 2029, after which the deduction goes back to $ 10,000.
To take full advantage of this increased deduction, taxpayers must itemize. So advisors expect that more clients will choose to itemize this year, which, in turn, might encourage more donors to take itemized charitable deductions. That is, there is potentially a bigger payoff from itemizing now than there was in the past.
“ If the SALT cap increase allows them to itemize in 2025 … taxpayers should consider accelerating as many charitable contributions into 2025 as is practical,” says Brian Schultz, a tax partner at Plante Moran in Southfield, Mich.“ Tax planning to maximize the benefit of these expanded deductions will be key.”
Unfortunately, it’ s never as simple as it sounds. There are also caps on SALT deductions for the wealthiest clients. For those with MAGI between $ 500,000 and $ 600,000 a year, the maximum SALT deduction decreases at a rate of 30 cents for every dollar over the $ 40,000 threshold. For those with even higher income, the SALT deduction reverts to the old maximum of $ 10,000.
Wealthy clients should consider“ making donations to reduce their income and take advantage of the expanded SALT deduction,” says Stasia Washington at Lido Advisors in Los Angeles. On the other hand, for clients who don’ t have enough
“ Charitably inclined clients who itemize and are interested in maximizing the tax benefits of their donations will receive a larger tax deduction for contributions in 2025” than in 2026.
— Corey Pederson, Crewe Advisors, Salt Lake City
deductions to itemize,“ the new SALT cap should not affect charitable plans,” she says.
Clients who are 70½ or older can also make qualified charitable distributions from their IRAs, which isn’ t part of the new law. If made to a qualified charity, these distributions, up to $ 108,000, can be deducted from the donor’ s taxable income this year.( The limit is indexed for inflation, and next year’ s is not yet determined.) Qualified charitable distributions can also count toward the required minimum distribution that clients age 73 and older must take out of their tax-deferred retirement accounts every year, which effectively reduces the tax liability of the RMDs.
The ultimate effect of the new rules is anyone’ s guess, but experts anticipate a flurry of charitable donations before the ball drops in Times Square. After that, says Pon,“ I suspect half of my clients will not have a charitable contribution anymore.”
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