by Christophe Cadiou, CPA and CFP® and Alisa Skatrud, CFA and CFP®, Senior Advisors at Plum Street Advisors
Are you charitably inclined, but want to make sure you’re optimizing your donations? If so, 2025 may be a great year to act. The new tax law enacted in July provides unique opportunities this year.
One of the biggest changes for 2025 impacts the amount of state and local tax payments (SALT) that can be deducted on a federal tax return. Previously, the SALT cap was $10,000 but it has now been raised to $40,000. This will allow many more taxpayers with high state and local taxes to itemize deductions on their federal tax return, even before considering charitable contributions, making it more likely that the full amount of your contribution will be deductible.
On the other hand, those who itemize will face more restrictive tax measures on charitable deductions starting in 2026:
- An Adjusted Gross Income (AGI) hurdle rate of 0.5% on charitable contributions will be introduced, meaning that if you make $500,000 for instance the first $2,500 in contributions will not be deductible.
- Itemized deductions will be capped at 35% from 2026 onwards, meaning that high income earners in the 37% tax bracket will potentially lose another 2% on their charitable contributions.
In light of these changes, taxpayers who itemize may want to consider accelerating their donations to occur prior to year-end 2025, to maximize the deductibility of their gift.
For those who continue to use the standard deduction instead of itemizing, it may be more favorable to concentrate contributions in 2026. Starting in 2026, cash donations to charities can be deducted up to $1,000 for single filers, and up to $2,000 for married couples filing jointly “above the line” (i.e. even for those who do not itemize).
While an optimal plan tailored to your financial goals and expected cash flows is best developed in concert with your financial advisor and accountant, here are some quick tips to take advantage of these tax law changes and optimize the tax impact of your charitable contributions.
Quick Tips: Strategies to Optimize Giving
- Bunching Charitable Contributions
Instead of making smaller annual contributions, consider a bunching strategy to maximize your tax deductions. Many people are not above the standard deduction threshold in any given year. By combining several years’ worth of giving into a single year, you are more likely to exceed the standard deduction amount, allowing you to itemize and leading to a larger tax deduction. The strategy of bunching is increasingly important for some people in 2025, as tax changes will result in less favorable outcomes starting in 2026. Using a Donor Advised Fund (DAF) can be an effective strategy along with bunching contributions, as it allows you to take advantage of the tax deduction in the year you donate to your DAF, while retaining flexibility as to when you donate to the end charities. - Donating Appreciated Securities
With the returns we have experienced in the stock market these past few years, many portfolios have securities with significant unrealized gains. Instead of realizing this gain when the security is sold, you can donate it instead. Many charitable organizations accept gifts of donated stocks. For the charity, there is no tax consequence: they usually sell the stock and use the proceeds for their charitable purposes. For the donor, you can save on capital gains taxes AND you are able to deduct the appreciated value of the donated securities if you itemize your deductions. - Qualified Charitable Distribution (QCD)
Already making Required Minimum Distributions (RMD) from your IRA? Withdraw the money in the form of a Qualified Charitable Distribution instead, which allows you to meet your RMD amount without the withdrawal being taxed to you.
Ready to maximize your 2025 giving? Contact Plum Street Advisors, www.plumstreetadvisors.com today to create a personalized charitable giving strategy before the less favorable 2026 rules take effect.