One Big Beautiful Bill
The One Big Beautiful Bill Act (OBBBA) was signed into law by President Trump on July 4th after the House of Representatives approved the Senate’s changes to H.R. 1, which passed the House by a narrow margin in May.
The OBBBA, with nearly 900 pages of provisions, reshapes policy across major sectors of the U.S. economy. Three major takeaways are of particular importance that are likely to impact your clients' charitable planning opportunities over the months and years ahead.
Insight #1: Standard deduction increases
What’s in the OBBBA? The new law makes permanent the standard deduction increases under the Tax Cuts and Jobs Act of 2017 (TCJA), increasing the standard deduction for 2025 to $15,750 for single filers and $31,500 to taxpayers who are married and filing jointly. The new law also expands the “bonus” deduction for taxpayers 65 and older through 2028.
For those who itemize, the following are relevant changes:
The tax benefit is capped at $0.35 for each dollar of itemized deductions rather than the full $0.37 per dollar.
Creates a 0.5% floor on charitable contributions for itemizers, meaning individuals who itemize would only earn a charitable deduction for giving in excess of 0.5% of their AGI.
Makes permanent the TCJA’s increased contribution limit of 60% for cash gifts made to qualified charities for taxpayers who elect to itemize.
What does this mean for charitable giving? While fewer taxpayers may be eligible to itemize, and deductions are capped for high-income earners, this is a great opportunity for us to collectively share the importance of community giving. Area nonprofits will need charitable gifts more than ever.
What can you do? As professional advisors who work with community members, it's helpful for us to remember that people don't give to charity solely to secure a tax deduction. There are many other factors that motivate charitable giving, and philanthropy is an important priority for many families in our community. (This article in the Stanford Social Innovation Review has stood the test of time.)
Insight #2: Deduction for non-itemizers
What’s in the OBBA? The new law includes a provision, effective after 2025, allowing non-itemizers to take a charitable deduction of $1,000 for single filers and $2,000 for taxpayers who are married and filing jointly. As has been the case in the past, gifts to donor-advised funds are not eligible. Unlike a previous (but smaller) similar provision, though, this law is not set to sunset.
What does this mean for charitable giving? The OBBBA’s deduction for non-itemizers has the potential to re-motivate charitable giving among a significant number of area individuals and families.
What can you do? As you talk about charitable giving with your clients who don’t itemize; a $1,000 or $2,000 deduction could be just the motivation they need to begin a journey of philanthropy. This is particularly true for young professionals early in their careers who are not yet itemizing deductions but want to support the causes they care about over the years ahead.
Insight #3: No sunsetting estate tax exemption
What’s in the OBBA? For affluent taxpayers updating financial and estate plans, the last couple of years have been a roller coaster because of the looming possibility that the TCJA’s increase to the estate tax exemption would sunset at the end of 2025. Finally, there is clarity: Under the OBBBA, the sunset will not happen. The new law makes permanent the increase in the unified credit and generation-skipping transfer tax exemption threshold. The 2025 exemption is $13.99 million for single filers and $27.98 million married filing jointly. In 2026, these numbers increase to $15 million and $30 million respectively.
What does this mean for charitable giving? Estate tax-based incentives to give to charity continue to apply to the ultra-wealthy. We take heart in knowing that most people will give to charity during their lifetimes and in their estates for reasons other than a tax deduction.
What can you do? There is no guarantee that the estate tax exemption will stay high forever. As families work with their tax and estate planning advisors, many are viewing the next two years as an important window to plan ahead. The upshot of the new law is that high net-worth taxpayers now have more time to thoughtfully consider estate planning strategies, including charitable giving.
