Charitable giving is often motivated by something more meaningful than a tax deduction.

It might reflect a commitment to a local organization, support for a cause that matters to your family, or a desire to make a lasting difference in your community.

Still, the way a charitable gift is structured can affect how much it ultimately costs to give.

Beginning in 2026, new federal tax rules are changing the calculation for many donors, particularly higher-income households that itemize deductions. Contributions that previously may have been fully deductible could now produce a smaller tax benefit, and some taxpayers may encounter an additional limitation on their itemized deductions.

The good news is that thoughtful planning can help you adapt without changing your charitable priorities.

What Changed for Charitable Contributions in 2026?

Starting in 2026, taxpayers who itemize deductions generally can deduct charitable contributions only to the extent those contributions exceed 0.5% of their adjusted gross income, or AGI.

Think of it as a minimum threshold that must be reached before an itemized charitable deduction becomes available.

If your AGI is $300,000, the first $1,500 of charitable contributions generally will not be deductible. If your AGI is $500,000, the first $2,500 generally will not be deductible.

The higher your income, the higher the threshold.

For example, if you contribute $10,000 to eligible charities:

• With an adjusted gross income of $250,000, the first $1,250 is not deductible, leaving a potential deduction of $8,750.
• With an adjusted gross income of $400,000, the first $2,000 is not deductible, leaving a potential deduction of $8,000.
• With an adjusted gross income of $600,000, the first $3,000 is not deductible, leaving a potential deduction of $7,000.

These figures assume the taxpayer itemizes deductions and that no other applicable limitations reduce the deduction further.

The IRS explains that charitable contributions falling below the 0.5% floor cannot be deducted for 2026. IRS: Publication 505, Tax Withholding and Estimated Tax

For donors accustomed to deducting the full amount of their qualifying charitable gifts, this represents a meaningful change.

A Deduction Is Not the Same as a Tax Credit

One important clarification: Losing a $2,000 deduction does not mean paying $2,000 in additional tax.

A deduction reduces taxable income. The actual tax impact depends on your marginal tax rate and other aspects of your return.

For example, if a $2,000 portion of your charitable contributions is no longer deductible and your applicable federal tax rate is 35%, the difference may amount to approximately $700 in additional federal income tax.

State income taxes, other deductions, and additional limitations can change that result.

The charitable gift still supports the organization you intended to help. What changes is the amount of tax savings associated with that gift.

Another Limitation Can Affect the Highest Earners

The 0.5% floor is not the only change.

Beginning in 2026, certain taxpayers with income in the highest federal tax bracket may also face a reduction in their total itemized deductions.

According to the IRS, the additional limitation can apply when taxable income exceeds:

• $640,600 for single filers and heads of household.
• $768,700 for married couples filing jointly.
• $384,350 for married individuals filing separately.

The reduction generally equals 5.4% of the lesser of total itemized deductions or the amount by which taxable income exceeds the applicable threshold. IRS: Publication 505, 2026 Itemized Deduction Rules

For taxpayers fully affected by the limitation, the federal tax benefit of affected itemized deductions may effectively decline from approximately 37 cents per dollar to approximately 35 cents per dollar.

Although the difference may seem modest, it can become more significant when combined with substantial charitable gifts, mortgage interest, and other itemized deductions.

It is also important to recognize that these rules use different measurements:

• The charitable deduction floor is based on adjusted gross income.
• The broader itemized deduction limitation is tied to taxable income.

That distinction matters when evaluating the impact of investment gains, business income, retirement contributions, and other planning decisions.

Why Smaller Annual Gifts May Become Less Efficient

Many families give consistently throughout the year.

They might make recurring monthly donations, contribute to annual fundraising campaigns, or divide their support among several organizations.

Those habits can be meaningful and effective from a charitable standpoint. Under the new rules, however, spreading donations evenly across multiple years may reduce the available tax benefit.

Consider a household with $400,000 of adjusted gross income that gives $10,000 annually.

Because the charitable deduction floor is $2,000 each year, the household could potentially deduct $8,000 of charitable contributions in the first year and another $8,000 in the second year.

Across two years, that amounts to $16,000 in potential charitable deductions.

Now suppose the same household contributes $20,000 in one year and does not make additional deductible contributions the following year.

Assuming the household has the same AGI and other relevant circumstances, the $2,000 floor applies once, resulting in a potential deduction of $18,000.

The household gives the same total amount over the same two-year period, but the timing creates an additional $2,000 of potential deductions.

At a 35% federal tax rate, that could translate into approximately $700 in additional federal tax savings, before considering other limitations.

This approach is commonly called bunching charitable contributions.

It does not make sense for everyone, but it can be useful when charitable giving is predictable and the donor has flexibility around timing.

How a Donor-Advised Fund Can Help

A donor-advised fund can make a bunching strategy easier to implement.

A donor-advised fund is a charitable account maintained by a sponsoring organization. You contribute cash, appreciated securities, or other eligible assets, and you may be able to claim a charitable deduction in the year the contribution is made, subject to applicable rules and limitations.

You can then recommend grants to eligible charities over time.

For example, a family that normally donates $10,000 each year could contribute $30,000 to a donor-advised fund in one year. The family could potentially claim the available deduction in that year while recommending $10,000 in grants annually over the following three years.

That allows the tax planning and the charitable distribution schedule to operate on different timelines.

However, a donor-advised fund does not eliminate the new 0.5% deduction floor. The contribution still must be evaluated under the applicable charitable deduction rules.

It is also important to understand how these accounts work:

• Contributions are generally irrevocable.
• The sponsoring organization has legal control over the donated assets.
• The donor typically retains the ability to recommend grants and, in some cases, investment choices.
• Administrative fees, investment expenses, and account minimums may apply.
• Grants distributed from the fund generally do not create a second charitable deduction because the deduction is associated with the original contribution.

The IRS describes donor-advised funds as accounts controlled by a sponsoring charity, with donors retaining advisory privileges over distributions and investments. IRS: Donor-Advised Funds

For families interested in supporting multiple organizations over time, a donor-advised fund may offer a useful combination of flexibility and organization.

Consider Donating Appreciated Investments

Cash is not always the most tax-efficient asset to give.

If you own investments that have increased significantly in value, donating appreciated securities directly to an eligible charitable organization may offer additional benefits.

Generally, when you donate publicly traded stock or another qualifying investment held for more than one year, you may be eligible to deduct its fair market value, subject to the applicable charitable deduction floor and other limitations.

You may also avoid recognizing the capital gain that would have resulted from selling the investment yourself.

Consider an investment originally purchased for $10,000 that is now worth $25,000.

If you sell the investment and donate the proceeds, the sale could create a $15,000 capital gain.

If you donate the investment directly instead, the charity may receive the full $25,000 value, and you may avoid recognizing the $15,000 gain while potentially receiving a charitable deduction based on the asset’s fair market value.

The specific outcome depends on the type of asset, the holding period, the receiving organization, and applicable deduction limits. Donations of long-term appreciated property are often subject to different AGI limitations than cash contributions. IRS: Publication 526, Charitable Contributions

This approach can be particularly relevant for individuals with concentrated stock positions or investments that have appreciated substantially over time.

If an investment has declined in value, the analysis may be different. Selling the investment first and donating the cash proceeds may allow the donor to recognize a capital loss while still making the intended charitable gift.

Qualified Charitable Distributions May Be Especially Valuable

For individuals who are at least age 70½, a qualified charitable distribution, or QCD, may provide another effective approach.

A QCD allows eligible IRA owners to transfer funds directly from an IRA to a qualified charitable organization.

When properly structured, the distribution is generally excluded from taxable income. It may also count toward a required minimum distribution for individuals who are subject to one.

This matters because a QCD operates differently from an itemized charitable deduction.

Rather than taking an IRA distribution, including that distribution in income, and then claiming a charitable deduction, the eligible distribution is generally kept out of income altogether.

That distinction can be valuable under the new rules because the QCD is not claimed as an itemized charitable contribution subject to the 0.5% floor.

It may also help manage income-related considerations such as Medicare premium surcharges or other tax provisions affected by AGI.

For 2026, the maximum annual QCD amount is $111,000 per eligible individual. Married couples may each have their own limit if each spouse separately qualifies and makes the distribution from their own IRA. IRS: 2026 Retirement-Related Dollar Limitations

There are several important requirements:

• You must have reached age 70½ before the distribution is made.
• The distribution must be made directly from the IRA to an eligible charity.
• A QCD generally cannot be directed to a donor-advised fund.
• You cannot also claim an itemized charitable deduction for the same distribution.
• Proper documentation and tax reporting are required.

The IRS specifically notes that donor-advised funds are not eligible recipients of qualified charitable distributions. IRS: Qualified Charitable Distribution Guidance

For retirees who regularly support charitable organizations, reviewing whether gifts should come from an IRA rather than a checking or investment account may be worthwhile.

What If You Do Not Itemize?

The 2026 rules also introduce a separate opportunity for some taxpayers who claim the standard deduction.

Eligible individuals may be able to deduct up to $1,000 of qualifying cash contributions, while married couples filing jointly may be able to deduct up to $2,000.

This deduction is separate from the itemized charitable deduction rules and is subject to its own requirements. IRS: Publication 505, Charitable Contributions for Non-Itemizers

For high earners, itemizing may still produce the greater overall benefit. However, whether to itemize should be evaluated alongside mortgage interest, state and local taxes, charitable gifts, and other available deductions.

The best approach may also change from one year to the next, especially when income or charitable contributions vary.

Planning Before Year-End Matters

Charitable planning tends to receive the most attention toward the end of the year, but some strategies require additional time to execute.

Donating appreciated securities may involve coordination with a brokerage firm and the receiving charity. Establishing or funding a donor-advised fund may require account setup and processing. Qualified charitable distributions must be properly requested and completed.

Waiting until the final days of December can create unnecessary complications.

It can also limit your ability to evaluate how charitable giving interacts with other financial decisions, such as:

• Realizing investment gains or losses.
• Exercising stock options or receiving equity compensation.
• Selling a business or investment property.
• Completing a Roth conversion.
• Taking required minimum distributions.
• Managing other itemized deductions.
• Preparing for changes in income from one year to the next.

Looking at these decisions together may reveal opportunities that are not obvious when each transaction is considered separately.

Giving With Purpose and Planning With Intention

The new charitable deduction rules do not change the value of supporting causes that matter to you.

They do, however, change the financial considerations surrounding when you give, what assets you use, and how your contributions are structured.

For some households, bunching donations may help preserve a larger deduction. For others, appreciated securities, donor-advised funds, or qualified charitable distributions may provide a better fit.

At Towerto Private Wealth, we believe charitable giving works best when it is considered as part of a broader financial plan—one that reflects your priorities while accounting for taxes, investments, retirement income, and long-term goals.

If giving is an important part of your financial life, reviewing your strategy before year-end may help ensure your generosity is aligned with both your values and your overall plan.

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Securities offered through LPL Financial, Member FINRA/SIPC. Investment advice offered through TOP Private Wealth, a registered investment advisor and separate entity from LPL Financial

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