Charitable giving has always been a cornerstone of the U.S. tax code, rewarding generosity with valuable deductions. But the newly passed One Big Beautiful Bill (OBBB) changes the rules, especially for high-income earners and business owners.
What’s Changing
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Lower deduction cap: Previously, deductions could reach up to 37% of a gift’s value. Now, the maximum is 35%, no matter your tax bracket.
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New 0.5% floor for individuals: Starting in 2026, you can only deduct charitable contributions that exceed 0.5% of your adjusted gross income (AGI). For example, if your AGI is $1 million, the first $5,000 of giving won’t count toward deductions.
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New 1% floor for businesses: Businesses can deduct only the portion of charitable gifts that exceed 1% of their income.
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Above-the-line deduction returns (with limits): Taxpayers who don’t itemize can deduct up to $1,000 ($2,000 for married couples filing jointly). However, this doesn’t apply to donor-advised funds or private non-operating foundations, and the amount isn’t indexed for inflation.
Why It Matters
These changes come at a time when charitable giving is already declining—the U.S. saw a 10.5% drop in 2022, the largest in decades. Reducing the tax incentives may discourage some donors, though many high-net-worth individuals say their giving is driven more by values than deductions.
Planning Ahead
For service-based entrepreneurs and high-income taxpayers, it’s more important than ever to:
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Revisit your charitable giving strategy.
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Understand how new deduction floors may affect your tax planning.
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Make sure your contributions align with both your financial goals and your values.
The Bottom Line
The OBBB doesn’t eliminate charitable giving deductions, but it does reshape them. By planning ahead, you can still maximize your impact and your tax benefits.
👉 Want to see how these changes affect your tax plan? Rae’s Accounting is here to help you navigate the new rules with clarity and confidence.
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