With the passage of the One Big Beautiful Bill Act (OBBBA) in 2025, many are examining its potential effects on charitable giving from high-net-worth individuals. The reality, however, is that the impact of this legislation is complex and multifaceted. While some provisions could provide incentives for increased charitable donations, others may have the opposite effect. Here’s a breakdown of the key factors that could influence philanthropic behavior.
Potential Challenges to Wealthy Donors’ Charitable Giving
- Estate Tax Exemption: One key change in the OBBBA is the permanent increase in the estate tax exemption to $15 million per individual. This reduces the tax incentive for some wealthy individuals to make large charitable bequests, as the estate tax burden is alleviated, and donations may no longer provide the same level of estate tax savings.
- Cap on Itemized Deductions: Another notable provision is the cap on the value of itemized deductions for taxpayers in the highest tax brackets. This includes the charitable deduction. For some, this cap may limit the tax advantages of making larger charitable contributions, possibly influencing the size of donations.
- New Floor for Charitable Deductions: The introduction of a 0.5% floor of AGI for charitable deductions may also affect donors. Under this new provision, the first 0.5% of AGI in charitable donations will not be deductible for those who itemize, which may reduce the tax benefits for donors making smaller contributions.
- Corporate Charitable Deduction Floor: For corporations, the OBBBA sets a threshold that only charitable contributions exceeding 1% of taxable income can be deducted. This may discourage some businesses from making routine or smaller donations, potentially affecting overall corporate philanthropy.
Potential Benefits for Charitable Giving
- Permanent Charitable Deduction Limit: The OBBBA does offer a positive incentive for giving. The law makes permanent the 60% of AGI limit for cash contributions to public charities for those who itemize. This provision helps maintain a strong incentive for large charitable donations, supporting individuals and families who wish to maximize their giving while benefiting from tax deductions.
- School Choice Tax Credit: The OBBBA also introduces a permanent School Choice Tax Credit, allowing donors to redirect tax payments toward educational scholarships. For those interested in supporting education, this provision offers a clear incentive to contribute.
- Strategic Giving: The changes in the legislation may encourage donors to plan their charitable giving more strategically. By consolidating donations into fewer, larger contributions, they may be able to exceed the new deduction floors, making their giving more tax-efficient.
- Increase in SALT Limitation. Taxpayers can now deduct up to $40,000 of state and local tax (SALT) deduction. This increase will be especially important for donors who reside in states with relatively high income tax and/or real estate taxes (like Wisconsin). More donors in such states may be able to itemize as allowable deductions will exceed the standard deduction, which will provide a tax benefit for such donors charitable gifts, exceeding the .5% AGI hurdle.
Other Key Considerations
- Motivation Beyond Taxes: It is important to remember that tax incentives are just one factor that motivates charitable giving. Many donors, both individuals and corporations, give because of a genuine desire to support their communities and causes they care about. While the tax code does influence giving patterns, philanthropy is driven by a wide range of personal and societal factors.
- Donor-Advised Funds (DAFs): For donors using DAFs, the OBBBA’s changes may have less impact. Contributions to DAFs are immediately tax-deductible, and donors can decide when and how to direct funds to charities. This flexibility may help donors continue their charitable efforts efficiently, even in light of new legislation.
The OBBBA introduces a range of tax changes that could influence charitable giving by the wealthy. Some provisions may reduce the incentives for certain types of donations, while others could provide new opportunities for high-net-worth individuals to give in a tax-efficient manner. Ultimately, the full impact of the OBBBA on philanthropic behavior will evolve over time.
