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A version of this article first appeared in CNBC’s Inside Wealth newsletter by Robert Frank, a weekly guide for high-net-worth investors and consumers. Sign up to receive future editions directly to your inbox.
Lawyers for wealthy individuals are advising their clients to step up their philanthropy this year to take advantage of diminishing tax benefits in 2026.
President Donald Trump’s sweeping tax and spending bill included a provision that would reduce tax breaks for high-income earners for making charitable contributions. The rule doesn’t go into effect until next year, so advisers to wealthy donors are encouraging them to front-load or “bulk” their gifts this year to take advantage of the tax benefits.
“If you’re thinking about making a big gift, or if you have a charity you want to support over the next few years and you already have the cash, now is the time to make a big gift,” said Dan Griffith, director of wealth strategy at Huntington Private Bank.
The bill handicaps large donors in two ways. First, starting in 2026, itemized donors will only be able to deduct charitable contributions that exceed 0.5% of their adjusted gross income (AGI). Under this floor, a household with an AGI of $400,000 that makes a $10,000 charitable gift in 2026 will no longer be able to deduct the first $2,000 of the gift, Griffith said.
Second, taxpayers in the 37% rate will see their deduction reduced by 2/37. This cap reduces the effective tax effect from 37% to 35%.
Changes to floors and ceilings may seem small, but they can have a noticeable impact on high-income earners. For example, consider an entrepreneur who has $10 million in AGI after selling his business and contributes $1 million to reduce his tax liability. If implemented in 2025, entrepreneurs would receive a $370,000 tax break, according to Griffiths. Starting in 2026, the cap will reduce the deduction by $20,000, and the floor will reduce it by an additional $50,000, he said.
These caps are especially important for entrepreneurs, who often make large contributions to reduce their tax burden when their AGI peaks, said Todd Kesterson, head of Kaufman Rossin’s private clients practice.
“We have a lot of clients because we held liquidity events. I think in both cases, we made charitable donations in the years that we held liquidity events,” he said. “But now it’s a bad year for them because the first 0.5 percent is not deductible.”
Kesterson expects donations to flood in by the end of the year to avoid a double whammy.
High-income earners who are committed to philanthropy should consider concentrating their giving, such as giving $500,000 now rather than $100,000 every year over five years, he said.
Even if you can’t make a donation by the end of the year, it’s better to make a large donation at once rather than triggering the 0.5% floor multiple times over several years, Griffiths said.
Despite the tax changes, high earners over age 73 can still save significantly on taxes by contributing the required minimum withdrawals from their retirement accounts.
“It’s effectively a 100% deduction because it reduces their income dollar for dollar,” Kesterson said of qualified charitable donations.
For donors who are pressed for time as 2026 quickly approaches, Justin Volesko of Cerity Partners Family Office recommends donating to donor-recommended funds. With a DAF, donors receive an upfront deduction so they can wait until they decide which charity to give their funds to. It’s also easier and faster to donate rising stocks, which Bolesko prefers to avoid capital gains taxes, to a DAF than to charity, he said.
Although the Republican bill incentivizes giving by low- and moderate-income donors, the vast majority of charitable giving goes to the wealthy. Research firm Altrata estimates that about 500,000 ultra-high-net-worth individuals worth at least $30 million contributed $207 billion in 2023, accounting for more than a third of all global individual donations.
Mr Kesterson said the new tax system was more likely to be a nuisance to wealthy clients than a real impediment to philanthropy. Griffiths expects some people will wonder if it’s worth donating.
“It certainly doesn’t encourage it,” he said.
