Navigating 2026 Tax Law Changes: Charitable Giving Strategies for Retirees and Business Owners

Charitable giving often reflects more than generosity—it’s a meaningful extension of your values and legacy. But beginning in 2026, several changes from the One Big Beautiful Bill Act (H.R. 1, P.L. 119-21) will affect how and when charitable donations are deductible on your tax return.

For business owners nearing or in retirement, and retirees living on investment income, these new rules could influence your tax efficiency and long-term gifting plans.

Key Tax Changes Starting in 2026

Under the new law, several changes will reshape how charitable deductions are treated for both itemizers and non-itemizers:

• New universal deduction for non-itemizers: Starting in 2026, taxpayers taking the standard deduction can deduct up to $1,000 ($2,000 for married couples filing jointly) of cash contributions to qualified charities each year. For retirees who no longer itemize deductions, this small but welcome benefit makes annual donations more rewarding.

• Deduction floor for itemizers: Beginning in 2026, donations will only be deductible to the extent they exceed 0.5% of adjusted gross income (AGI). This means that if your AGI is $200,000, only gifts above $1,000 will count toward your deduction.

• Permanent AGI percentage caps: The limits for deductible contributions—60% of AGI for cash donations and 30% for non-cash gifts—have been made permanent.

• New cap for high earners: For individuals in the top 37% marginal bracket ($626,350+ for singles, $751,600+ for joint filers in 2025), the tax value of itemized deductions will be capped at 35%.

Combined, these provisions may reduce the after-tax benefit of charitable giving, especially for higher-income business owners or retirees with significant investment income.

Strategic Opportunities for 2025 and Beyond

With these rules taking effect in 2026, there’s still time to plan around them.

Accelerate Donations into 2025

If you were already considering a large charitable gift, it may be advantageous to make it before 2026. Doing so allows you to claim the full deduction under current rules, without the 0.5% floor or 35% cap.

Business owners expecting a strong income year in 2025—perhaps due to a business sale or bonus—may especially benefit from this timing strategy to offset taxable income at a higher marginal rate.

A choice between two years requires an analysis of both years' tax return to ensure the optimum choice is selected.

Leverage Donor-Advised Funds

Donor-advised funds (DAFs) remain a versatile tool for strategic giving. Donors can contribute cash, securities, or other appreciated assets to a DAF in 2025 to lock in the current-year deduction, while distributing grants to charities later.

This approach can help high-income individuals or those facing a one-time event—such as a business sale, inheritance, or Roth conversion—manage both charitable goals and tax exposure effectively.

Consider Charitable Bunching

“Bunching” several years of gifts into a single tax year can help itemizers exceed the new 0.5% floor starting in 2026. Retirees or business owners with variable income may find this useful for managing year-to-year tax efficiency.

Depending on your situation, bunching in 2025 could maximize current deductions. Alternatively, those who do not itemize might delay contributions until 2026 when the new universal deduction applies.

Use Qualified Charitable Distributions (QCDs)

For individuals age 70½ or older, qualified charitable distributions from an IRA remain one of the most tax-efficient giving options.

A QCD allows you to donate directly from your IRA to a qualified charity—up to $108,000 in 2025 and $115,000 in 2026—without including the amount in your taxable income. QCDs can also satisfy part or all of your required minimum distribution (RMD), reducing taxable income in retirement. The timing of a QCD is critical; to count as your RMD it must be the first distribution from the account for the year.

This strategy avoids the new deduction floor and cap altogether, making it particularly attractive for retirees managing RMDs or those looking to reduce future tax liabilities.

Choosing the Right Charitable Approach

With more than one strategy available, consider these practical steps:

• Align your giving with your long-term estate and tax plan. A larger gift in 2025 could secure better tax efficiency.

• Use donor-advised funds or trusts to maintain control while planning ahead for multiple causes.

• Keep written records of all charitable activity, especially smaller cash donations that may now yield tax benefits post-2025.

• Work with your advisor before taking RMDs to ensure QCDs are properly executed and maximize their benefit.

The Bottom Line

The latest charitable deduction changes offer both opportunities and challenges for retirees and business owners in transition. While the new rules may slightly reduce the tax benefit of giving for some, strategic timing and smart tools such as QCDs and DAFs can help preserve both impact and efficiency.

Thoughtful planning today can help ensure your generosity continues to benefit your finances, your family, and the causes you care about—well into retirement and beyond.