For 2026, donors who itemize may claim a tax deduction for contributions of cash of up to 60% of AGI and for contributions of noncash assets held more than one year, up to 30% of AGI. The OBBBA made the 60% ceiling for cash gifts to public charities permanent. Donation amounts in excess of these limits may still be carried over for up to five tax years, but several new limitations need to be considered.
Taxpayers who take the standard deduction may now deduct up to $1,000 of cash gifts, or $2,000 for married couples filing jointly, without itemizing. The deduction is permanent, is not indexed for inflation and applies only to cash given directly to qualifying public charities. Gifts of appreciated property, contributions to donor-advised funds and gifts to most private foundations do not qualify.
Itemizers may deduct charitable contributions only to the extent the total exceeds 0.5% of their contribution base, which is generally AGI. A donor with $400,000 of AGI who gives $20,000 loses the deduction on the first $2,000 and deducts the remaining $18,000, subject to the aforementioned percentage ceilings.
The floor applies to cash and noncash gifts alike and applies every year, making bunching and donor-advised funds more valuable in 2026 than they were in 2025.
For taxpayers in the top 37% bracket, the tax benefit of itemized deductions, charitable gifts included, is capped at essentially 35 cents on the dollar. The limitation applies to all itemized deductions, including state and local taxes and mortgage interest as well as charitable gifts, and it is applied after the 0.5% floor. Combined with the floor, it raises the after-tax cost of large gifts for the highest earners, though it does not change what may be given or carried forward.
Business owners face a parallel change. A corporation must now make charitable contributions equal to at least 1% of taxable income before any deduction is available, with the existing 10% ceiling and the related carryforward rules continuing to apply above that floor.
To illustrate, consider an individual who has $10 million of AGI and makes a $10 million cash contribution in 2026. The $10,000,000 cash gift is first limited to 60% of AGI, or $6,000,000. The 0.5% floor then reduces that to a $5,950,000 deduction. Because the gift exceeds the 60% ceiling, the $50,000 disallowed by the floor is added to the carryforward rather than lost. The carryforward is $4,050,000, available for the next five years. Compared with 2025, the floor moves $50,000 from the current year into the carryforward.
The floor is especially costly for donors who give modestly each year. If a donor’s gifts stay under the AGI percentage ceilings, any amount disallowed by the floor is not carried forward; it is permanently lost. For example, a taxpayer with $180,000 of AGI who gives $800 in 2026 falls entirely under the $900 floor and gets no deduction and no carryforward. Concentrating several years of giving into one year, often through a donor-advised fund, gets more of each dollar over the floor while still allowing grants to charities over time.
Furthermore, some donors may find that the total of their itemized deductions for 2026 will be slightly below the level of their standard deduction. In that circumstance, it could be beneficial to combine or “bunch” 2026 and 2027 charitable contributions into one year (2026), itemize deductions on their 2026 tax returns and take the standard deduction on their 2027 tax returns.
While achieving a large charitable impact in 2026, this strategy could also produce a larger two-year deduction than two separate years of itemized deductions, depending on income level, tax filing status and contribution amounts each year.
In addition, with state and local taxes deductible up to $40,400 for 2026, many homeowners in high-tax states will clear the standard deduction on SALT and mortgage interest alone, which makes their charitable gifts deductible at the margin without any bunching at all.
Consider bunching charitable deductions in 2026 or making contributions to a donor-advised fund. This can increase your charitable deduction and allow your itemized deductions to exceed the standard deduction.
The benefit of a donor-advised fund is that you can deduct the charitable contribution this year and allocate funds from the donor-advised fund to individual charities in later years. Note, though, that gifts to a donor-advised fund do not qualify for the new deduction available to taxpayers who do not itemize.
Consider donating appreciated securities rather than selling such securities and donating the cash proceeds. This approach eliminates the capital gain tax you would pay on the sale and provides a deduction for the charitable contribution.
Alternatively, consider selling depreciated securities from your portfolio to harvest the tax losses and then donating the cash proceeds. By doing so, you can recognize a tax loss that can offset any capital gain for the year or up to $3,000 of ordinary income, and you will receive a charitable deduction for your cash donation.
Make gifts sheltered by the annual gift tax exclusion before the end of the year. The exclusion applies to gifts of up to $19,000 made in 2026 to each of an unlimited number of individuals, unchanged from 2025, and a married couple who elects to split gifts can give $38,000 per recipient.
Consider making 2026 charitable donations via qualified charitable distributions from an IRA. Once you reach age 70½, the amount of the contribution is neither included in your gross income nor deductible as an itemized deduction and the amount of the qualified charitable distribution reduces your RMD, which can result in tax savings. The QCD limit is indexed for inflation and rises to $111,000 per person for 2026, up from $108,000 in 2025. The technique is more attractive in 2026 than it was in 2025 because the distribution never enters AGI and sidesteps both the new 0.5% floor and the new 35% cap on the value of itemized deductions.
The OBBBA created a new type of IRA for children under age 18 with a valid Social Security number. Contributions began July 5, 2026.
Children who are U.S. citizens born between January 1, 2025, and December 31, 2028, are eligible for a one-time $1,000 government contribution under a pilot program, so parents of young children may want to consider opening an account to capture it.
Employers may contribute up to $2,500 per employee per year, excluded from the employee’s income under IRC §128, through a Trump Account contribution program. That cap applies per employee, not per child.
Employers considering Trump Account contributions should note that the contribution program can be offered through a cafeteria plan by salary reduction when the contribution goes to an employee’s dependent’s account, but not to the employee’s own account. IRS has said it will address how these programs coordinate with cafeteria plans in proposed regulations.
Beginning with tax years ending after December 31, 2026, individuals can claim a dollar-for-dollar credit of up to $1,700 for cash contributions to qualified scholarship-granting organizations (SGOs) that serve K-12 students from low- and middle-income families.
The credit is available only if the donor’s state elects to participate and certifies the SGO. It is reduced by any state tax credit claimed for the same contribution, and the amount used for the credit cannot also be deducted as a charitable gift. Unused credit limited by tax liability carries forward up to five years. Contributions made through partnerships or S corporations do not qualify.
Donors should keep the unique donor number the SGO provides, because it must be reported on Form 8525 to claim the credit.
Raising children and helping them pursue their educational goals can be highly rewarding but extremely expensive. Fortunately, there are several tax breaks that can offset some of these costs.
If you’re saving for education expenses, consider a 529 plan, which is named for section 529 of the Internal Revenue Code. These tax-advantaged plans, sponsored by states, state agencies and educational institutions, are investment accounts that offer tax benefits when the money is spent on qualified education expenses for the beneficiary.
Unlike other tax-advantaged accounts, there is no annual federal contribution limit, but each state plan imposes an aggregate account limit, which generally ranges between $235,000 and $575,000.
Once invested, money in a 529 plan grows tax-deferred and is not subject to federal income tax when applied toward qualified education expenses. Contributions are not deductible from federal income taxes, but some states offer tax deductions or tax credits on 529 plan contributions.
Note that contributions may trigger gift tax consequences if you earmark more than the $19,000 annual gift tax exclusion for 2026, unchanged from 2025, for any one beneficiary in a tax year, though individuals can elect to contribute up to five years of gifts (that is, $95,000) to a 529 plan in 2026 and treat the contribution as if it were spread over a five-year period for gift tax purposes. A married couple electing together can front-load $190,000 per beneficiary.
In addition, unused money from a 529 plan can be rolled over on a tax-free basis to a Roth IRA established in the name of the beneficiary. Among other limitations, the 529 plan must have been open for 15 years and the account holder cannot roll over contributions made in the last five years. Rollovers are subject to the annual Roth IRA contribution limit, which is $7,500 for 2026, and the beneficiary must have earned income at least equal to the amount rolled over. There is also a $35,000 lifetime cap on 529-to-Roth transfers, so moving the full amount takes at least five years and is worth starting early.
The OBBBA expansion of 529 plans is now fully in effect. The annual K-12 withdrawal limit doubled from $10,000 to $20,000 per beneficiary beginning in 2026, and the definition of qualified K-12 expenses now reaches well beyond tuition to include curriculum materials and textbooks, online educational materials, tutoring by a qualified unrelated instructor, standardized test fees including AP and college entrance exams, dual enrollment fees and educational therapies for students with disabilities. Qualified postsecondary credentialing expenses also count, covering recognized licensing, certification and workforce training programs, including apprenticeships registered with the Department of Labor and programs listed in state Workforce Innovation and Opportunity Act directories.
Note that many states have not conformed to the federal expansion, so a withdrawal that is tax-free for federal purposes can still be taxable at the state level; confirm your state’s treatment before taking a distribution for tutoring, test fees or therapies. Separately, the OBBBA made tax-free rollovers from a 529 plan to an ABLE account permanent, subject to the ABLE account’s annual contribution limit, which is a useful option where the beneficiary has disability-related needs.
These accounts are similar to 529 plans in that contributions are not deductible for federal purposes, but plan assets can grow tax-deferred and distributions can be used to pay qualified education expenses without the imposition of income tax. In addition, you choose how to invest the money in the account, typically on behalf of the beneficiary.
Unlike 529 plans, there is an income eligibility limit and a relatively low limit on contributions. The annual maximum is $2,000 per beneficiary and less for higher earners. This means that if a parent contributes all $2,000, grandparents and other individuals are not allowed to make additional contributions to the account during the year.
ESAs are worth considering if you would like to have direct control over how your contributions are invested, or if you want to pay elementary or secondary school expenses above the 529 plan’s annual K-12 cap, which doubled to $20,000 for 2026. Note that your child can be the beneficiary of both a 529 plan and an ESA, and you can contribute to both accounts in the same year. Bear in mind that the $2,000 Coverdell limit is set by statute and is not indexed, so the larger 529 allowance has made 529 plans the more useful of the two accounts for most families.
There are also several potential tax credits you can claim if you have children in college or are currently in school.
If you are paying post-secondary education expenses beyond the first four years, you may benefit from the Lifetime Learning credit of up to $2,000 per tax return.
This tax break covers 100% of the first $2,000 of tuition and related expenses and 25% of the next $2,000 of expenses. The maximum credit per student is $2,500 per year for the first four years of post-secondary education.
Both credits carry the same dollar amounts for 2026. The Lifetime Learning credit’s income phase-out is not indexed for inflation and still begins at $80,000 of modified AGI for single filers and $160,000 for joint filers, phasing out completely at $90,000 and $180,000. Note that the same expense cannot support both a tax-free 529 distribution and an education credit, so families drawing on a 529 should plan to pay some tuition out of pocket in order to preserve the credit.
Health savings accounts (HSAs) and flexible spending accounts (FSAs) are programs with tax benefits that you can use to save on health care costs.
If you provide employees with a qualified high-deductible health plan, which typically has lower premiums and plan contributions and higher deductibles than a traditional health plan, you can also offer them HSAs. HSAs are an elective benefit that an employer can offer as a way for employees to set aside tax-advantaged medical savings to pay for copays, deductibles and other qualified medical expenses. The HSA works much like a standard checking account, often including a debit card, and it is up to the employee to track their contributions, expenses and reimbursements.
Note that contributions to an HSA are limited to $4,400 for individual coverage and $8,750 for family coverage in 2026, rising to $4,500 and $9,000 respectively in 2027. Savers who are 55 or older may add a $1,000 catch-up contribution, an amount fixed by statute that is not indexed for inflation. To contribute at all, you must be covered by a qualifying high-deductible health plan, which for 2026 means a deductible of at least $1,700 for self-only coverage or $3,400 for family coverage, with out-of-pocket exposure capped at $8,500 and $17,000.
The OBBBA also widened access to HSAs in ways worth flagging to employer clients. Bronze and catastrophic plans purchased as individual coverage through an exchange now qualify as high-deductible health plans, the telehealth safe harbor that permits pre-deductible remote care is permanent, and a direct primary care membership no longer disqualifies an employee from contributing so long as the fees stay within $150 per month for individual coverage or $300 for an arrangement covering more than one person.
An FSA is another type of employer-established plan that pays for qualified medical expenses but with pre-tax dollars. Employers and employees may both contribute to the FSA, and an FSA is not limited to high-deductible plans like an HSA. Unlike an HSA, funds in an FSA are subject to an annual use-it-or-lose-it rule, meaning any funds that are unspent by the end of each plan year are forfeited to the account holder’s employer.
The health FSA contribution limit is $3,400 for 2026, up from $3,300 in 2025, and the maximum carryover for plans that allow one is $680. The dependent care FSA cap changed far more: the OBBBA raised it to $7,500, or $3,750 for married taxpayers filing separately, for plan years beginning in 2026, the first permanent increase since 1986. Employees should revisit their open enrollment elections against both figures.
With proper planning, there is still time left in 2026 to take advantage of tax benefits and aggregate contributions.
As year-end approaches, now is the time to review your tax strategy and prepare for the year ahead. Withum’s Year-End Tax Planning Resources brings together timely insights, practical planning considerations and resources to help individuals and businesses navigate an evolving tax landscape.
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Disclaimer: No action should be taken without advice from a member of Withum’s Tax Services Team because tax law changes frequently, which can have a significant impact on this guide and your specific planning possibilities.
