A current topic of conversation with clients recently has been considering accelerating (or “bunching”) charitable contributions into 2025 due to recent changes in the tax code resulting from the One, Big, Beautiful Bill (OBBB). In some instances, those conversations have also included considering the use of a donor advised fund.
In summary, there are minor tax advantages to accelerating charitable contributions into 2025 versus future years. Below we will briefly outline the key elements of the tax law changes, factors to consider, and how a donor advised fund could be beneficial.
Tax Law Changes
The OBBB made a few tax changes to charitable donations that are important to understand. These changes are effective starting in 2026, which is resulting in the considerations regarding bunching 2025 contributions. The following is a summary of the key changes:
- For non-itemizers, you can deduct charitable donations of $1,000 for single filers and $2,000 for married couples.
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For filers that itemize deductions (only around 10% of filers), you can only deduct charitable contributions that exceed 0.5% of adjusted gross income (AGI). For example, if a couple had an AGI of $500,000, only charitable contributions amounts in excess of the first $2,500 would be deductible.
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Also, for filers that itemize deductions, in addition to the AGI limit in #2 above, there is a cap on the value of deductible itemized charitable contributions at 35%. Thus, if you are in the highest federal tax bracket (37%), you are losing out on 2% of the deductible contribution amount versus prior tax law.
Analysis
As a result of these changes, many in the industry are suggesting that it is advisable to accelerate contributions into 2025 instead of making them in future years. However, broadly speaking, below is the framework we suggest you consider when contemplating an acceleration of contributions from future years into 2025:
Determine if you itemize deductions or take the standard deduction.
- If you plan to accelerate charitable donations in 2025, be sure you are itemizing deductions. Taxpayers taking the standard deduction will not lower their 2025 tax liability by increasing charitable contributions.
Assuming you have concluded that you are itemizing your deductions, consider the magnitude of your donations given the tax law changes and determine if you fall into one of the two following categories. If so, accelerating charitable contributions into 2025 could be beneficial tax-wise.
- Your charitable contributions are generally less than 0.5% of your AGI, and thus would not be deductible in future years.
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You are in the top federal tax bracket (37%), which would be a taxable income amount of over $640,600 in 2026 for single filers and $768,700 for married couples. Remember that this amount of taxable income would generally exclude your long-term capital gains, most dividends, and municipal bond interest income, so this figure is quite a high hurdle.
Analyze these additional factors and how they impact your financial situation.
- Your charitable contributions should be significant enough that you believe the benefits of acceleration are worthwhile.
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You are prepared to donate cash or assets this year as opposed to future year(s) and thus forgo access to those assets in the interim.
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You can determine and make significant donations, either to qualifying organizations or entities, by the end of this year.
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Does a qualified charitable distribution (QCD) make more sense? If you are age 70.5 or older and have a traditional IRA, then you can make QCDs up to $111,000 per person in 2026. Once an individual reaches the age for which they have a required minimum distribution (RMD), any QCDs offset the income from RMDs.
If you find accelerating donations to be worth considering after going through this analysis, one hurdle may be selecting charities by the end of 2025. A solution to this issue could be a donor advised fund.
A Donor Advised Fund Explained:
A donor advised fund (DAF) is a charitable investment account which allows the donor to make periodic donations of cash or, more optimally, appreciated securities to a DAF account. One benefit is that the donor can facilitate donations to qualifying organizations in amounts and at times that differ from the original contribution to the DAF. Thus, you can benefit from the deduction of a full donation (up to IRS limits) in the year completed and recommend donations to organizations over a longer timeframe. Additionally, the assets in your DAF account can be invested until they are recommended to charitable organizations (technically, you are recommending to a financial institution regarding where to grant money), therefore allowing the DAF account balance to grow tax-free over time.
Other advantages of a DAF are simplified recordkeeping, a smooth and efficient process to recommend grants to charities, and a streamlined investment experience.
This is a very brief overview of the structure of a DAF, but for those considering an acceleration of contributions, a DAF may be a viable option.
Conclusion
If you are considering accelerating donations into 2025, including potentially using a DAF, we encourage you to determine whether the tax law changes apply to your circumstances. It certainly may turn out that the actual benefit of accelerating contributions due to tax law changes may not be as much as anticipated, especially when considering the qualitative factors like loss of personal use of funds and potential future legislative changes. Depending on the complexity of your situation, we recommend consulting your tax adviser. We also encourage you to approach charitable giving as a thoughtful, personalized strategy, rather than one driven solely by changes in tax law. Should your family or someone you know benefit from a conversation about the topics discussed in this article, we invite you to call or email our office.
