Charitable strategies for 2025 are going to look a bit different as a result of recent tax law changes, which included several provisions that will have an impact on charitable giving.
In the spirit of amplifying community impact, here are three tax-advantaged charitable giving strategies worth considering with your clients before year end:
- Itemizers and C-Corporations should consider maximizing their charitable donations in 2025—before new floors on charitable deductions go into effect. Starting in the tax years beginning after December 31, 2025, itemizers will only earn a charitable deduction for giving in excess of 0.5 percent of their adjusted gross income (AGI), and C corporations will need to give at least 1 percent of their taxable income before they qualify for a charitable deduction. Additionally, for top bracket taxpayers, tax benefits of itemized deductions will be capped at $0.35 per $1 deducted starting next year, rather than the full $0.37 per dollar previously received by taxpayers in the top tax bracket. It might be advantageous to increase charitable giving in 2025 before these new provisions take effect.
- Donors should consider “bunching” two or more years’ worth of charitable giving into a single tax year to gain the maximum tax benefit. Bunching is a time-tested tax strategy wherein a donor consolidates several years of giving into a select year. By bunching giving into a Donor Advised Fund (DAF), donors can contribute assets into a named account, get an immediate tax deduction, invest DAF assets tax-free, then suggest grants out of that fund gradually over time. This ensures that donors can continue to provide stable support to the nonprofits and causes they are passionate about, while maximizing tax savings. New floors on charitable deductions for itemizers and C corporations will further increase the popularity of bunching as a tax strategy in years to come.
- Individual Retirement Account (IRA) owners age 70½ or older should consider making a qualified charitable distribution (QCD) from their IRA to ensure their AGI qualifies them for the enhanced deductions for seniors. Effective for 2025 through 2028, individuals age 65 and older may claim an additional deduction of $6,000 per eligible individual. This new deduction is available for both itemizers and non-itemizers and is in addition to the current additional standard deduction for seniors under existing law. This deduction phases out for taxpayers with modified AGI over $75,000 ($150,000 for joint filers). For this reason, IRA owners age 70½ or older with modified AGI over that threshold may wish to make a QCD by donating money directly from an IRA to a qualifying charity. The distribution counts toward the IRA owner’s required minimum distribution (RMD) if applicable, but the distribution is not recognized as AGI. For more information on rules, restrictions, and charitable strategies relating to QCDs, check out this article on Creative Uses of QCDs.
⏰The time for year-end gift planning is now! Donations generally must be received by nonprofits on or before December 31 to qualify as charitable deductions on 2025 tax returns. Gift execution is not instantaneous, and some gifts of non-cash assets can take several weeks or longer to process, so plan ahead. Similarly, donors wishing to make a QCD in 2025 should submit the request to their IRA custodian by late November to ensure the gift is received by December 31.
Contact us if you are interested in learning more about how The Columbus Foundation can help you or your clients achieve their charitable goals.
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The Columbus Foundation serves thousands of individuals, families, and businesses that have created unique funds and planned gifts to make a difference in the lives of others through the most effective philanthropy possible. The Columbus Foundation is Your Trusted Philanthropic Advisor and is one of the top 10 largest community foundations in the country.