NEW Charitable Giving Tax Laws - Everything You Need to Know!

Major changes to charitable giving tax laws are reshaping how donations impact your taxes. In this video, we break down the latest rules, limits, and strategies every donor needs to understand. You’ll learn how these updates affect deductions, required documentation, and tax planning for individuals and businesses. We’ll also cover common mistakes to avoid and how to maximize the impact of your giving under the new rules.

Resources:

- Alliance of Comprehensive Planners: https://www.acplanners.org

- John's firm website: https://www.trinfin.com

- Find us on Facebook: https://www.facebook.com/friendstalkfinancialplanning

TRANSCRIPT:

John: My state taxes I paid last year to Illinois were $30,000. I only got credit for $10,000. Next year I could get credit for up to $40,000. So if I was kind of close or that limitation was really hitting me, geez, maybe I wasn't itemizing previously, but now next year I would be. One of the things we talk about at this time of the year before December 31^st is what does it actually look like this year? What will it look like with next year's tax law? And you actually have to take a look at that.

Bridget: Hi, I'm Bridget Sullivan Mermel. I've got a fee-only financial planning practice in Chicago, Illinois.

John: And I'm John Scherer, and I've got a fee-only financial planning practice in Middleton, Wisconsin. Before we get into charitable giving changes to the tax law, I want to remind everybody to hit that subscribe button and help other people find this information on YouTube. And with that, Bridget, let's dig into the new big beautiful tax bill and how it really affects people this year and next with their charitable giving.

Bridget: Yeah, so it's going to have an impact for charitable giving this year, and there're kind of a few different flavors of it. Okay, so what I want to do is talk about where we're going to end up in 2026 and then what's happening in 2025 and how you might want to change some of your behavior in 2025 in preparation for 2026. So where we're going to end up in 2026 is two types of charitable contributions—two ways to take it. You can only do one or the other. The first is if you're not itemizing.

So this is a deduction for non-itemizers like we had I think during COVID when there was a special deduction for non-itemizers. Each person, so if you're married, you get two, can have a thousand-dollar deduction for charitable contributions. Now they say it's supposed to be cash, so that would mean cash, credit cards, Venmo, that kind of stuff and to 501(3)(C) institutions. So it doesn't count for charities. And in this case, for this deduction, a donor advised fund doesn't work either. It's got to be cash; it can’t be stock or that kind of thing.

John: Cash. And it's not stuff, right? I'm not giving my things, dressers or old used clothes that sort of thing. It's literally just dollars.

Bridget: Right. No stuff or stocks. But if you're donating cash, you get a thousand bucks for each person on a married filing jointly return or a thousand bucks if you're single. And again, it starts in 2026. So that's the first way to take charitable contributions in 2026. The second way to take it in 2026 is if you're itemizing. And briefly itemizing is a whole list of things like mortgage interests, state or local income tax, charitable contributions are the biggest, sometimes medical expenses get in there too, depending on how big they are.

So if this whole list is bigger than the standard deduction, which has increased as part of the big beautiful bill, then you take the itemized deductions. Itemizers usually know who they are. So in 2026 there's going to be two things that I think are going to impact the charity. And let me talk about the direct charity first. Your charitable deductions are going to be subject to 0.5% of your AGI reduction. All right, goodness gracious, who understands fractions? Who understands multiplying?

John: What about percentages and fractions together? That gets really exciting😊

Bridget: All right, so we need an example here. Let's say our adjusted gross income is $100,000 and we donate $2,000. So $100,000 times 0.5%. This turns out to be $500. All right, so if you donated $2,000, then you have to subtract that $500 and you end up with $1,500 deduction. You would make that donation in 2025 where you don't have that reduction instead of 2026.

John: Yeah. So that's the ‘26 rule, is that half a percent of your income, basically you don't get any credit for. But this year in ‘25, that doesn't kick in.

Bridget: Exactly. So if you're itemizing, it can make a difference if you're donating in 2025 or 2026 and how much deduction you're going to get. But the other thing about itemizing in 2026, and this is not quite in the lane of charity, but it'll make a difference, is that I think more people are going to be itemizing in 2026 because of SALT. I think it’s called that because people like spicy.

So anyway, spicy is the word, so we’ll go with salty. SALT stands for State and Local Tax. In 2025, that is limited to $10,000, and it doesn't matter if you're single or if you're married.

In 2026, it's being increased to $40,000, except there's a phase out if you're making over $500,000. And that’s married filing jointly. I don't recall what the number is for single.

So that means the SALT limitation will go away for the high-income people, but for most people it won't. So that means there's going to be more itemizers. So it could be that next year you will itemize because of this SALT. Illinois has pretty high property taxes. Property tax plus income tax equals over ten grand for a lot of couples and definitely a lot of individuals too.

John: Right.

Bridget: So there will be more people itemizing. Single people especially can be itemizing just based on that but then throw in some property tax or mortgage interest and you definitely have more itemizers. So, that's something to consider that you might not be getting an itemized deduction in 2025.

And then if you just wait until 2026, you might be itemizing. Even though it's going be subject to a limitation, it'll still be worth it. So if you're in that SALT category and you're not itemizing now, it might be worth figuring out if you're going to itemize in 2026 or not.

John: I think this is the case, but if you have been itemizing under the preexisting tax law

because my mortgage interest and gifts to charity are all above, then I’ll almost certainly continue itemizing, right?

Bridget: I would say that’s true.

John: Your mileage may vary, but that'd be a real exception if you weren't.

Bridget: But maybe it would change if you moved.

John: Right. But if I wasn't itemizing and especially if I'm in a higher tax bracket, listen, my state taxes I paid last year to Illinois were $30,000 or something, I only got credit for $10,000. Next year I could get credit for up to $40,000. So if I was kind of close or that limitation was really hitting me, geez, maybe I wasn't itemizing previously, now next year I would be.

So if you already were itemizing, that would be a signal to go, listen, let's not take that half a percent haircut next year if I know I'm itemized this year and next. But if it's close, then I need to take a look. And one of the things we talk about at this time of the year before December 31 is what does it actually look like this year? What will it look like with next year's tax law? And you actually have to take a look at that.

Bridget: Absolutely. I don't want to get too bogged down in this also because a lot of people that give money are actually older people. Because if you have more money than you need, then that's a great time to get money away.

John: I wanted to circle back, if it's okay, onto one of the things. With these two major changes, there’re all these nuances between the years, but basically, if you're on the itemizing side, if you are itemizing, you got that half a percent of your income floor, you don't get any credit for that. And then the flip side of the thing you said first, listen, don't itemize at all.

Just take standard deduction. I don't pay high taxes, I don't have a mortgage, but I can get $1,000 per person or $2,000 for a couple as far as a deduction next year. So as we just talked about a minute ago, listen, if I'm itemizing every year, I probably want to maybe take next year's donations and maybe put them into December. If I'm on the other side of that coin though, and I go, listen, I just give money because it makes sense; it's a good thing to do.

That would be a thing that, geez, maybe don't give it yet this year and save this year's until January. Again, just to be aware of that. If you don't get credit this year, you might get credit next year. And it’s six- and one-half dozen. I'm still going to give this to charity. You don't have to do a lot of math, but at least you might have a chance of taking some tax credit for it next year.

Bridget: Exactly. That's absolutely true. So if you're not itemizing this year, if you wait until January 1st, then you can probably take it next year whether or not you're itemizing.

John: Yeah. And these are just things to think about.

Bridget: If you know you're itemizing, then there's an advantage to doing this year and next year's this year.

John: Right. If you are itemizing this year, double up. If you're not itemizing this year, we don't know what it looks like but waiting probably makes more sense. That's a great takeaway.

Bridget: Yeah. Very good. Awesome. All right, so it's a great time to wrap it up. With that, I'm Bridget Sullivan Mermel. I've got a fee-only financial planning practice in Chicago, Illinois.

John: And I'm John Scherer. I got a fee only financial planning practice in Middleton, Wisconsin. Both Bridget and I are taking on new clients. We'd love to hear from you, but if you like what you hear on our show and you'd like to find an advisor in your area, we're both members of the Alliance of Comprehensive Planners. And you can check out acplanners.org to find an advisor who thinks like us but lives in your area.

Bridget: And please subscribe.

At Sullivan Mermel, Inc., we are fee-only financial planners located in Chicago, Illinois serving clients in Chicago and throughout the nation.  We meet both in-person in our Chicago office and virtually through video conferencing and secure file transfer.