Big, Beautiful Deductions
There’s a lot to go through in the One Big, Beautiful Bill Act or “OBBBA”. We are going to focus on some of the changes impacting tax exempt organizations and a high level overview of what the average nonprofit leader and donors are interested in. This is not meant to be comprehensive, rather a digestible overview of the OBBBA as it impacts the charitable landscape.
Let’s start with how it came about.
Many of the provisions of the Tax Cuts and Jobs Act of 2017 (“TCJA”) were set to expire, or sunset, in 2025. Congress chose to pass legislation to extend and expand many of those provisions through a reconciliation bill. These provisions are effective for tax years after December 31, 2025, so they apply to 2026 donations.
Our focus is on how this will impact donors and by extension, the organizations they support. Some basic vocabulary straight from your 1040:
Gross Income: your total income from all sources.
Adjustments to Income: certain deductions that the IRS allows you to take before calculating your tax liability. These are things like student loan interest, contributions to health savings accounts (HSA’s), and contributions to traditional individual retirement accounts (IRA’s). These items come right off the top, or “above the line”.
AGI: Adjusted Gross Income, or AGI, is basically gross income - adjustments to income.
Take a look at the first page of your own 1040 or here if a visual helps.
Understanding the basics of tax deductions is the baseline for much of this discussion. For purposes of charitable donations, some of the changes in OBBBA directly impact the deductibility of donations, particularly smaller donations. Being able to take above the line deductions theoretically will incentive smaller donors who don’t itemize to be more generous.
Some more definitions before we really get into it:
Standard deduction: This is a set amount that taxpayers can opt to utilize to reduce taxable income. It’s adjusted for inflation and the amount is based on a number of factors like filing status, age, whether you have dependents or not, and blindness. It’s meant to provide a measure of tax relief to all taxpayers and simplicity by not requiring everyone to itemize their deductions. As an overview the amount of the standard deduction for 2025 in the following categories is:
Single taxpayers and married individuals filing separately: $15,000
Married couples filing jointly: $30,000
Heads of households: $22,500
Itemizing deductions basically means listing these items one by one and then adding up the total amount. If your itemized deductions exceed the standard deduction for your filing status, itemizing may be the way to go. Here are some of the most common itemized deductions for 2025:
State and Local Taxes (SALT)
Medical and dental expenses
Mortgage interest
Charitable contributions: You can deduct donations made to qualifying charities.
Casualty and theft losses: You can deduct losses from federally declared disaster areas.
Other potential itemized deductions: Bad debts, canceled debt on home, capital losses, gains from the sale of your home, gambling losses, and certain miscellaneous itemized deductions may also be deductible.
Charitable Deduction for Non-Itemizers
You may have noticed when you filed your 2024 return, that if you took the standard deduction, you could not also deduct charitable contributions separately. This had impacted small donors in particular because as the standard deduction had doubled with the passing of the TCJA in 2017, fewer taxpayers were itemizing their deductions. There was a special rule put in place during the COVID-19 pandemic allowing donors to deduct up to $300 even if they opted to take the standard deduction. This was extended to $600 for married filing jointly for cash donations made to charities in 2021 after which time it expired.
OBBBA includes a provision reinstating an above the line deduction of $1,000 for single taxpayers and $2,000 for joint filers. Meaning that even if a taxpayer opts to take the standard deduction they can still take an additional deduction for charitable contributions within these limits. This deduction only applies to cash contributions to 501(c)(3) public charities and excludes contributions to supporting organizations, donor-advised funds, and private foundations.
Charitable Deductions for Itemizers
Starting in 2026, itemizers can only deduct the portion of their qualified charitable contributions that exceed 0.5% of their AGI. This is referred to as a floor. The provision allowing deductions up to 60% of the taxpayer’s AGI remains in force and has now become permanent.
While the 60% ceiling remains unchanged, prior to OBBBA, there was no floor on the deductibility of contributions.
As an example of how a floor works practically, if a taxpayer has an AGI of $400,000, the first $2,000 ($400,000 x .005) of their charitable contributions cannot be taken as a deduction
An additional change is that for taxpayers in the top 37% tax bracket, the deduction for charitable contributions will be capped at 35%.
There is no floor for the charitable contribution deduction for taxpayers utilizing the standard deduction.
Tax Increase on Endowments
The biggest change for colleges and universities is a shift from a flat 1.4% excise tax on net investment income to a tiered system based on the size of the endowment per student.
Private colleges and universities with endowed assets per student between $500,000 and $750,0000 will pay 1.4%, and those between $750,000 and $1,999,999 will pay 4%. Institutions with $2 million or more of endowed assets per student will pay 8%.
This tax only applies to institutions with 3,000 tuition-paying students or more during the preceding taxable year. The prior law applied to institutions with over 500 students, so this does exempt a number of smaller institutions from the excise tax. Institutions that are subject to the tax will face enhanced reporting requirements, including disclosing student numbers on IRS Form 4720.
The definition of "net investment income" is expanded to include interest income from student loans and federally subsidized royalty income. The exemption for qualified religious institutions has been eliminated, they are now subject to the excise tax as well.
Charitable Deductions for Corporations
Corporations are still able to deduct contributions up to 10% of their taxable income, however OBBBA introduces a floor of 1%
This means corporations may now deduct only the charitable contributions in excess of 1% of taxable income (e.g., $100,000 for $10 million of taxable income; $1 million for $100 million of taxable income).
While contributions below the 1% threshold are not deductible, excess contributions can be carried forward for five years.
In order to not permanently lose the disallowed amounts (the amounts UNDER the 1% floor) the corporation must also have a carry forward amount, meaning the corporation's total contributions exceeded the 10% ceiling in the year of contribution. Otherwise, the disallowed amounts are generally lost permanently.
The carry forward is applied on a first-in, first-out basis, meaning older carry forwards are used before newer ones. This is a more complex calculation than it may seem to be because in any given carry over year, the total deduction (current contributions plus carry forwards) cannot exceed the 10% limit and so if it is exceeded, that amount is then carried forward.
Estate (and Generation Skipping Transfer Tax) Exemption Amount
The 2026 amount is $15 million per taxpayer, $30 million per couple. This means that generally only the very wealthiest taxpayers will really be concerned with charitable planning as an estate tax savings strategy, at least as far as the federal estate tax is concerned. Philanthropy is not always a tax strategy, however. Charities remain popular takers of last resort and legacy, social responsibility, and impact are enough of an incentive for many testators.
Fundraising Going Forward
What should we look for in 2026 and beyond?
The continuation of the higher standard deduction may result in fewer donors financially incentivized to make larger donations, however the increase over the line charitable deduction amount may encourage more small donations across the board.
OBBBA does limit charitable deductions for taxpayers in the highest brackets to 35% versus the 37% they pay in taxes. This may provide an opportunity for those taxpayers to make larger 2025 contributions or fund donor advised funds. One possible angle for increasing donations is appeals to corporate donors who are incentivized to make larger donations and build true corporate giving strategies.
Since the passage of the TCJA in 2017 organizations have had to find ways to appeal to donors that go beyond tax incentives, it’s likely that that will continue to be a smart strategy.
