With the giving season officially underway, December 31 marks your critical tax deadline for charitable giving. About 30% of annual gifts occur before year-end, making this the prime time for taxpayers to maximize their 2025 itemized charitable donations tax deduction.
And for high-income earners, charitable giving in 2025 is particularly vital. Tax legislation in 2026 will cap the maximum federal tax benefit at 35%, effectively making contributions this year far more valuable. Plus, a new rule next year might further reduce the allowable charitable deductions for donors with complex gifting strategies.
Here’s what you need to know.
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Charitable deduction for high-income earners in 2025
Let’s first review why donating this year, in 2025, is more advantageous than in 2026. Basically, the 2025 Trump Tax Bill changed many rules regarding charitable donations. Those changes are summarized in the following table.
|
Tax Rule |
2025 Rules |
2026 Rules |
|---|---|---|
|
Adjusted Gross Income (AGI) Floor for Itemized Charitable Deduction |
No floor; every dollar is deductible (up to limits). |
Only the portion of total charitable contributions above 0.5% of your AGI is deductible. |
|
Charitable Deduction Cap |
For those in the 37% tax bracket, the deduction provides a 37% tax benefit. |
The tax benefit of the deduction is capped at 35% for top earners. |
|
Order of AGI Limit Calculation |
The deduction for cash contributions to public charities (the highest 60% AGI limit) is calculated first, followed by other limitations (50%, 30%, 20% categories). |
The order is reversed: Contributions subject to the lowest AGI limit (20%) are calculated first, and the deduction for cash to public charities (60% limit) is calculated last. |
As you can see, for 2026, a charitable contribution “floor” will be introduced for itemizers, regardless of income level. Only total contributions above 0.5% of your AGI will be deductible.
For example, if you had $200,000 AGI and donated $2,000, only $1,000 would be deductible.
Charitable contributions for high-income itemizers will also be subject to a cap in 2026. The new law imposes a 35% limit on the value of all itemized deductions for high earners, meaning taxpayers in the top bracket will receive a lower tax break compared to 2025.
The calculation order for charitable asset types will be reversed. Assets with the lowest deduction limits (e.g., 20% of AGI) will now be calculated first.
This technical change directly affects how much of your giving is an allowable deduction in 2026, potentially reducing the overall tax break for high-income donors who make gifts of varying asset types.
While excess contributions can still be carried forward for up to five years, carryforwards used in 2026 and beyond will be subject to the new limitations.
So below are three ways for you to take advantage of the more advantageous donation rules in 2025 — especially if you’re a high earner.
1. Donate stock to charity (or other appreciated non-cash assets)
You may have heard that donating appreciated stock (or other non-cash assets) is a part of a good charitable deduction strategy. Well, that’s because donating these assets provides a “double” tax benefit.
- You can deduct the asset’s full fair market value, pre-tax. If your asset’s fair market value (FMV) is higher than “cost-basis” (what you paid), the gain is not taxable once donated to a qualified, public charity.
- This allows you to avoid capital gains tax. By transferring the asset directly to your chosen charity, you’ll avoid paying capital gains tax (up to 20%) on the increase in the asset’s value. Plus, you may also avoid paying the 3.8% net investment income tax (NIIT).
Of course, there are a couple of caveats when donating appreciated non-cash assets.
- Namely, the donated asset must have been held for more than one year before donation; otherwise, the asset will be donated at cost-basis, which could be significantly lower than the value of an appreciated stock.
- Also, donations of appreciated stock to a public charity are subject to a 30% AGI limit, which is higher than the AGI limit for cash (60%). Despite this difference, avoiding capital gains tax typically makes donating the asset (rather than selling and donating the cash) more tax-advantageous.
If you donate appreciated assets to specific types of accounts, your donations may also yield tax-free growth for future charitable giving. One such account that high-earners typically use is a donor-advised fund (DAF).
High-income earners can use three strategic moves to maximize tax breaks for the charitable deduction.
(Image credit: Getty Images)
2. Use a donor-advised fund (DAF) bunching tax strategy
A donor-advised fund (DAF) allows you to claim an immediate tax deduction for your contributions this year (under the more favorable 2025 rules), while the fund recommends grants to your chosen charities over time.
Given the flexibility in timing, a DAF is often used in conjunction with a tax strategy called “bunching.” This is where you pay two or more years’ worth of itemized expenses in the current tax year to push your total itemized deductions over the standard deduction amount.
- If performed correctly, “bunching” your deductions gives you one year of high itemization followed by one year of the standard deduction, which maximizes your total tax savings for both years.
- Using a DAF-bunching strategy is particularly beneficial for high-income earners who anticipate a higher federal income tax rate in 2026, when charitable giving tax laws will be less favorable.
- Plus, tax-free growth in a DAF means you can pay out more money in the future, amplifying your philanthropic impact.
Also, bunching doesn’t just exist for charitable deductions. You can front-load other popular itemized deductions, like the state and local (SALT) deduction, the medical expense deduction, and even the mortgage interest deduction, to help push your deduction amount higher than the standard. Yet keep in mind that certain AGI limits and other IRS rules may apply to each itemized deduction.
3. Make a charitable IRA distribution (QCD)
A qualified charitable distribution (QCD) is a distribution from your IRA to a qualified charity of your choice. QCDs are particularly beneficial if you’re trying to avoid taking your required minimum distribution (RMD) and still want to meet your charitable giving goals for the year.
Here are the eligibility requirements for 2025:
- You must be age 70 ½ or older.
- You can donate up to $108,000 (or $216,000 if married spouses) in a single tax year.
- The distribution must be made from a traditional IRA, an inherited IRA, or an inactive SEP/SIMPLE IRA.
Although QCDs require that you “give up” a portion of your annual IRA distribution to a charity, that amount is excluded from your AGI.
This lower AGI may reduce your taxable income, thereby lowering your tax on Social Security benefits for the current year. Even better, reducing your AGI helps lower your income for the Medicare premium calculation two years later, potentially allowing you to avoid higher premiums.
But a QCD doesn’t qualify as an itemized “charitable deduction” on your income taxes, which may hamper your bunching strategy. You also can’t use a DAF to make a QCD, so be sure to review your complete charitable giving strategy before making one.
Changes to charitable donations in 2026
While we covered several notable ways to maximize your gifting strategy in 2025 if you’re a high-income earner, here are a couple of other gift tax changes going into effect in 2026:
- Increased estate tax exclusion. While the basic exclusion amount for individuals was $13.99 in 2025, the exclusion was increased to $15 million in 2026. This may affect your gifting strategy as a higher exclusion amount allows individuals to transfer more wealth to heirs estate tax-free.
- New non-itemizer charitable deduction. A federal deduction for non-itemizers up to $1,000 for single filers (or $2,000 for joint filers) will be available in 2026. However, you can’t use this deduction in conjunction with DAF or private foundations.
Of course, these changes may not affect everyone, depending on your gifting strategy. Also, state tax rules may differ. Consult with a qualified tax professional to discuss which tax strategies are best for your financial circumstances.