The recent tax reforms introduced by the One Big Beautiful Bill Act, signed into law by President Donald Trump on July 4, 2025, are poised to transform charitable giving in the United States. While the changes aim to encourage more Americans to donate, the overall impact on charitable contributions remains nuanced.
Research indicates that while more individuals may choose to donate, the total amount given by individuals, families, and corporations could see a decline. Projections suggest a decrease of approximately $5.7 billion in donations due to these tax changes, effective from January 1, 2026. This reduction represents roughly 1% of the nearly $600 billion donated in 2024.
Universal Charitable Deduction Introduced
The most significant change is the introduction of a universal charitable deduction, a long-standing goal for nonprofit leaders. This provision allows all taxpayers to deduct up to $1,000 for single filers and $2,000 for joint filers from their taxable income, irrespective of whether they itemize deductions. However, these amounts are not indexed for inflation and apply only from the 2026 tax year onwards.
For individuals under the 22% tax bracket, this deduction could reduce their tax liability by $220 for singles and $440 for couples filing jointly. This is particularly advantageous for the 90% of households that utilize the standard deduction.
Unlike the temporary $300 deduction available during the COVID-19 pandemic, this new measure is permanent, potentially encouraging a stronger response from taxpayers.
Implications for Standard and Itemized Deductions
Previously, only those who itemized could deduct charitable contributions, but the new universal deduction changes that dynamic. Historical data shows that 85% of non-itemized donations exceeded the new deduction limits, indicating that while the deduction could incentivize some giving, it may not lead to an increase beyond previous levels for many.
Boost in Donor Numbers Expected
The permanent universal deduction is expected to increase the number of donors by 8.7 million, lifting the percentage of Americans who donate to 52%. This is a reversal of the declining trend observed over the past decade.
Changes Affecting High-Income Donors
New rules could deter donations from wealthier individuals. High-income earners who itemize can only deduct contributions exceeding 0.5% of their income, potentially reducing donations by $2.4 billion. Furthermore, the cap on tax deductions has been reduced from 37% to 35%, impacting donations by high-income households.
Data from the IRS indicates that this 35% cap could decrease individual giving by $6.1 billion, as these households contribute a significant portion of itemized charitable donations.
Corporate Giving and Its Challenges
Corporate donations, accounting for 7% of all charitable gifts in 2024, could diminish due to new restrictions. Corporations can only deduct gifts if they exceed 1% of pretax profits. Historically, corporate giving has averaged around this threshold, suggesting that the new rule could limit contributions.
However, options like donor-advised funds allow corporations to strategically time their donations for tax efficiency, potentially mitigating some of the impact. Despite this, a decline of $1.55 billion in corporate giving is anticipated.
A Nuanced Outlook on Charitable Giving
Overall, these tax changes may lead to a $5.7 billion annual reduction in donations, primarily affecting high-value individual and corporate contributions. Nevertheless, the introduction of a universal charitable deduction could foster a broader donor base, particularly among lower-income individuals.
While the full impact of these policies will unfold over time, other economic factors such as income levels, stock market performance, and economic growth will continue to play a critical role in shaping charitable giving trends.
