How the New Tax Law Could Affect Charitable Giving
On July 4, President Donald Trump signed the One Big Beautiful Bill Act (OBBBA) into law. The legislation extends and makes permanent many of the provisions of the Tax Cuts and Jobs Act (TCJA) of 2017 that were scheduled to expire at the end of this year, while also addressing other tax priorities of the Trump administration.
The OBBBA contains several provisions that could impact charitable giving, which in turn could affect nonprofit organizations. Some of them take effect this year, which makes it critical to evaluate how they could impact your organization’s finances and fundraising strategies.
Many experts believe that the legislation could be significant enough to alter charitable giving patterns once it takes full effect next year. Billions of dollars in charitable contributions may be riding on how donors respond to the law’s restructuring of donation deductions and other provisions.
Potentially Reducing Nonprofit Resources
The changes come on the heels of cuts and freezes by the Trump administration to funding for some nonprofit organizations, along with reductions to Medicaid and Supplemental Nutritional Assistance Program (SNAP) that could shift some of the burden for providing social services to nonprofits.
After the legislation was passed, the National Council of Nonprofits stated that the bill would ultimately reduce resources available to nonprofit organizations and negatively impact their ability to provide essential services to their local communities.
“At a time when nonprofit organizations face enormous financial challenges, these tax provisions will make it harder for organizations to fill gaps unmet by local, state and federal governments and the private sector,” stated the Council, which estimates that the bill will reduce nonprofit resources by at least $81 billion over the next 10 years.
Key Provisions Affecting Nonprofits
Some of the law’s provisions will likely encourage individuals and corporations to make charitable donations while others will likely discourage charitable giving. Following is a closer look at how key provisions of the OBBBA could affect the nonprofit sector.
- Higher standard deduction made permanent. In 2025, the standard deduction increases by $1,000 for single filers to $15,750 and by $2,000 for married couples filing jointly to $31,500.
Since the standard deduction was raised by the TCJA, the number of filers who itemize deductions has fallen to around 10%. These taxpayers don’t have a tax incentive for charitable giving because only itemizers can deduct charitable donations. With the higher standard deduction now permanent, this could reduce charitable giving by donors who will no longer be able to deduct their contributions.
- New charitable deduction for non-itemizers. Beginning next year, the approximately 90% of taxpayers who don’t itemize deductions will be able to claim a deduction of $1,000 for single filers or $2,000 for married couples filing jointly. This could help offset some of the negative effect on charitable donations potentially caused by the higher permanent standard deduction.
This above-the-line deduction is similar to the $300 charitable giving deduction for non-itemizers that was part of the CARES Act in 2021-2022. The new deduction could especially benefit nonprofits that are heavily dependent on donations from middle-income households that could potentially benefit the most from it.
- Higher SALT deduction cap. The deduction for state and local taxes (SALT) has been increased from $10,000 to $40,000 for tax years 2025 through 2029. As a result, more taxpayers will have total deductions that exceed the standard deduction and could therefore benefit from itemizing. This, in turn, could incent these taxpayers to make higher charitable contributions.
The Tax Foundation has estimated that the higher SALT deduction limit will increase the percentage of itemizers to over 14%.
- Percentage of AGI deduction made permanent. The ability for individuals to deduct cash gifts to public charities of up to 60% of their adjusted gross income (AGI) is now permanent, retaining the incentive for donors to make large cash contributions.
- New deduction floors for individual and corporate donations. Effective next year, itemizers will not be able to deduct charitable contributions below 0.5% of their AGI. For example, the deduction floor for an individual with $200,000 in AGI would be $1,000, which means a charitable contribution of $2,000 would yield a deduction of only $1,000. A similar deduction floor of 1% will also be implemented for corporate donations next year.
- New deduction cap for high earners. For taxpayers in the 37% tax bracket, charitable donation deductions will only be worth 35%, effective next year. For example, a $10,000 charitable donation will yield a deduction of $3,500, not $3,700. The National Council of Nonprofits states that this provision “will reduce the incentive for and amount of charitable giving. Floors and ceilings on charitable giving create artificial limitations on the incentive to give to charitable organizations.”
- New tax credit for donations to eligible Scholarship Granting Organizations (SGOs) that provide scholarships too eligible students. Effective in 2027, individuals who support an eligible SGO can claim a $1,700 federal tax credit. This credit is available to both itemizers and non-itemizers. However, the credit is dependent on each respective state’s election to participate in the program. The participating state must submit a list of qualifying SGOs to the Secretary of Treasurer in order for the tax credit to apply to the individual’s donation.
- Higher excise tax on college and university endowments. An excise tax ranging from 1.4%-8% will be assessed on investment earnings from university endowments. Universities with student-adjusted endowments between $500,000 and $750,000 will pay the lowest rate of 1.4%, those with endowments between $750,000 and $2 million will pay a 4% excise tax, and those with endowments greater than $2 million will pay the highest rate of 8%.
Private colleges and universities with fewer than 3,000 tuition-paying students will be exempt from this endowment tax. Currently, only 56 colleges and universities nationwide are subject to the 8% tax rate, but this is expected to rise over time.
- Higher estate and gift tax exemptions made permanent. The lifetime gift and estate tax exemption will be $13.99 million for single filers and $27.98 million for married couples filing jointly in 2025, rising to $15 million and $30 million, respectively, in 2026. The exemption will be indexed annually for inflation after next year.
With these higher exemption amounts now permanent, the vast majority of estates will not be subject to federal estate taxes. Individuals and families can lower their estate and lifetime tax liability by making charitable contributions.
Start Planning Now
The One Big Beautiful Bill Act presents both opportunities and challenges for nonprofit organizations. Now is the time to review your financial and fundraising strategies in light of the changes wrought by the legislation.
Contact us if you have questions about how the new tax law could affect your nonprofit.
