Tax Reform & Charitable Giving: What It Means for Your Organization and Donors

The tax and spending legislation signed into law on July 4 will reshape charitable giving incentives across donor segments. This analysis examines how these changes will affect different donor groups and offers strategic guidance for nonprofit leaders navigating this evolving landscape for year-end fundraising and long-term planning beyond 2025.

For Everyday Donors: New Incentives to Give

Universal Charitable Deduction Opens Doors in 2026

The permanent universal charitable deduction creates tax incentives for the vast majority of Americans who don’t itemize their taxes, over 90% of filers in recent years. This provision allows non-itemizers to deduct charitable contributions up to $1,000 for individuals and $2,000 for joint filers starting in 2026.

This reform acknowledges philanthropy’s broad importance and may help reverse the troubling trend of fewer Americans participating in giving. Organizations should begin planning now for how to communicate this benefit. While $1,000/$2,000 is higher than the House’s original proposal of $150/$300, and clearly better than its absence altogether that is current tax law, keep in mind that the $1,000/$2,000 limit considers all of a donor’s charitable giving of cash and goods in the calendar year, and not only the portion they allocate to your organization. A donor who is regularly giving gifts of $500+ in response to your fundraising appeals may be maxing out their deduction when combined with other giving. A tax-benefit focused appeal at year-end may have negligible effect, while a beginning of the year promotion could be more compelling. Smaller givers, however, may still have room at year-end to make additional qualifying contributions to their favorite organizations.

Strategic Considerations:

a. Develop clear messaging for 2026 that explains this new benefit to non-itemizing donors

b. Consider segmented communication strategies that highlight this upcoming incentive

For Mid-Level and Major Donors: A Mixed Landscape

New Thresholds and Caps Affect Higher-Income Giving

Two significant provisions will reshape giving incentives for those who itemize deductions:

1. A 0.5% AGI floor requires itemizers to contribute at least 0.5% of their adjusted gross income (AGI) before claiming charitable deductions. Analysis commissioned by TNPA and the Charitable Giving Coalition persuaded Senate allies to reduce a 1% floor initially proposed, mitigating potential negative effects on mid-level and major giving. A giving floor is a new provision, so we do not yet know how this may change giving behavior, particularly for donors who do not typically give at a high enough level to trigger any charitable deduction under this new law. One possibility: Bunched giving, putting two or three years’ worth of charitable giving in a single year to get a tax benefit, and then taking years off. This may also increase the appeal of DAFs for donors who wish to receive the tax benefit but allow them more flexibility to make decisions annually about the causes they wish to support.

2. A 35% Cap on itemized deduction value, reduced from 37%, appears modest but could substantially impact philanthropic giving. Research from Indiana University’s Lilly Family School of Philanthropy, commissioned by Independent Sector, projects this cap will reduce charitable giving by $41-61 billion over the next decade. Higher wealth donors are mindful of the tax implications of spending decisions, including charitable giving, making the two percentage points significant in potentially suppressing annual giving totals.

Strategic Considerations:

a. Engage major donors now about maximizing deductions before 2026 changes take effect

b. Audit your internal processes for DAF stewardship, including identifying and appropriately messaging to DAF donors, frictionless donation forms, and basic administration for recording and segmenting DAF contributions

c. Develop giving scenarios that illustrate optimal approaches under the new rules

d. Consider multi-year pledges that allow donors to optimize giving across tax years

For Corporate Partners: Navigating New Constraints

A 1% Floor: Reshaping Corporate Giving Patterns

The 1% AGI floor on corporate charitable deductions is expected to impact institutional giving patterns. Analysis by EY, also commissioned by Independent Sector, noted that most corporate contributions currently fall below this floor, indicating that this, too, could encourage bunching behavior, concentrating multiple years’ contributions into single tax years to surpass the threshold. This will disrupt consistent corporate support, potentially creating cyclical funding patterns that complicate nonprofit planning and stability.

Strategic Considerations:

a. Initiate conversations with corporate partners about the 1% floor’s implications

b. Develop flexible multi-year commitment structures that accommodate bunching strategies

c. Create recognition programs that acknowledge multi-year commitments, even when actual gifts are concentrated in specific years

Strategic Planning Timeline: Before Year-End 2025

– Establish baseline metrics for giving patterns across donor segments

– Develop targeted communications for different donor types about upcoming changes

– Refine donor segmentation to account for factors that may influence giving capacity

Planning for 2026 and Beyond

– Launch messaging campaigns for non-itemizers about the universal deduction

– Implement donor education programs explaining new thresholds and optimization strategies

– Enhance DAF cultivation strategies to accommodate increased utilization

The Broader Context

These tax policy shifts intersect with a pattern of giving increasingly concentrated among fewer donors and the ongoing challenge, driven both by intentional fundraiser strategy and broader socioeconomic factors, to reverse the decline in smaller gift donors. The Giving USA 2025 report, released at the end of last month, shows a 2024 increase of 3.3% when adjusted for inflation, even as the more recent quarterly snapshots of giving from Fundraising Effectiveness Project continue to show declines in the number of donors and greater reliance on top-of-the-pyramid supporters.

Also interesting to note: New research from GivingTuesday uncovered an ideological dimension to 2025 giving patterns. Conservative-leaning donors are demonstrating greater financial generosity than centrist and left-leaning counterparts, potentially indicating a difference in economic confidence levels.

While tax policy creates important incentive structures, the fundamental impulse to give transcends tax considerations. Organizations that understand the nuanced impacts on different donor segments and develop targeted strategies will be best positioned to maintain and grow support aligned with, or despite, these changes.

Make It Actionable

Looking to kickstart your development team’s strategic planning? Prompt your favorite generative AI tool to create an interactive decision tree for charitable giving under the new tax law that:

1. Asks donors about their tax situation (itemizer status, income level, giving history)

2. Guides them through optimal giving strategies based on their answers

3. Explains relevant provisions in plain language at each decision point

4. Provides specific action steps and timing considerations

5. Formats the output as a flowchart to embed in your website or emails