Federal Taxes and Charitable Giving

The influence of new federal tax policies on charitable giving is neither apocalyptic nor a panacea. Remaining mindful of research with a dose of wisdom based on your donor relationships can help nonprofits plan for 2026 when the new tax law takes effect.

The return of the Universal Charitable Deduction (UCD) is straightforward. Regardless of income or gift size, all taxpayers will be able to deduct charitable giving from their federal taxes ($1,000 for singles; $2,000 for married households filing jointly).

This provision is important for philosophical and practical reasons. The UCD democratizes the tax code’s treatment of philanthropic giving, allowing all taxpayers – not just the wealthy – to receive a charitable tax deduction. In addition, the UCD could encourage more people – including lower- and moderate-income taxpayers– to donate to charity. The huge surge of individual donations during COVID – equal to the $300 and $600 UCD at that time – offers hope that the new UCD could generate similar results.

For donors who choose to not utilize the UCD, understanding a new ceiling and a new floor on deductions for charitable giving requires a mix of research and wisdom. At the ceiling, donors in the top 37 percent tax bracket can only deduct their charitable giving at the 35 percent tax bracket. Economic modeling by the Indiana University Lilly Family School of Philanthropy reveals that this aspect of the new law might depress annual charitable giving by $2 billion to $8 billion.

People in this top tax bracket are earning at least $626,350 (single) or $751,600 (married filing jointly). If your donor database does not include this top one percent of income earners, the ceiling does not affect your fundraising. If you know donors in this income range, a conversation with them about how the new tax policy will affect their charitable giving – if at all – is in order.

Then there is the floor. Taxpayers who choose not to utilize the UCD will not be allowed to deduct one-half of one percent of their adjusted gross income (AGI) when itemizing charitable deductions. For single donors with an AGI of $200,000 or less, and for married filing jointly households with an AGI of $400,000 or less, this provision is moot if their donation is relatively small.

In this example, the single filer who donates $1,000 or less and joint filers who donate $2,000 or less simply can take the UCD.

For donors with higher AGIs and higher donation levels, research by the Indiana University Lilly Family School of Philanthropy estimates that these households donate an average of $20,000 - $30,000 per year. This is where wisdom based on your donor relationships comes in.

Is someone going to stop donating $30,000, or donate less, because they cannot deduct the first one-half of one percent of their AGI when itemizing on their federal taxes? Maybe (especially if 0.5 percent of their AGI is, for this example, at least $30,000). You should ask them. But, wisdom, based on your lived experience with that donor, says probably not.

Meanwhile, the increased deduction for state and local taxes (SALT) also might have a positive influence on charitable giving. With the SALT limit rising to $40,000 (from $10,000), millions more people could itemize, and more itemizing can be associated with more charitable giving.

There also are new rules for the business sector. Companies still can donate up to 10 percent of pre-tax profits, but the first one percent no longer will be eligible for a tax deduction. This can seem distressing since the business sector, on average, donates about 1 percent of pre-tax profits to charity.

While the new policy might persuade some businesses to reduce or eliminate their charitable giving, private sector motivations for philanthropy are centered around government relations, employee relations, altruism, and exposure to current and possible customers. In this context, tax deductions are an added bonus.

Again, talk with your corporate donors about how the new federal tax law will affect their charitable giving, if at all.

Also, business sector sponsorships of nonprofits that can be described as marketing can be described as business expenses, and some or all of those business expenses could be tax deductible. (Consult IRS Section 513(i) for an explanation of what constitutes “marketing.”)

Taxes rarely if ever are the first and only reason why people donate. Philanthropic values and motivations for individuals and corporate social responsibilities for businesses remain highly influential. That said, taxes do matter.

Remaining mindful of research and maintaining strong relationships with your donors can help you plan your nonprofit’s fundraising for 2026 and beyond.