The One Big Beautiful Bill Act (OBBBA), enacted on July 4, 2025, introduces sweeping reforms to the tax treatment of charitable contributions. For high-net-worth individuals (HNWIs), these changes present both strategic opportunities and new limitations that warrant careful planning to preserve philanthropic impact and optimize tax outcomes.
Attorneys in particular often experience income spikes from bonuses, settlements, or firm buyouts, triggering higher tax liabilities. Qualified charitable giving, when timed and structured effectively, can reduce taxable income while supporting causes aligned with professional and personal values.
Key Provisions Impacting Charitable Deductions
1. Above-the-Line Deduction for Non-Itemizers
The OBBBA reinstates and expands the above-the-line deduction for cash contributions to public charities (excluding donor-advised funds and supporting organizations):
- Up to $1,000 for individuals.
- Up to $2,000 for married couples filing jointly.
This provision allows modest deductions without itemizing, but is limited in scope and applicability.
2. AGI Floor for Itemized Deductions
For itemizers, OBBBA introduces a 0.5% Adjusted Gross Income (AGI) floor:
- Only contributions exceeding 0.5% of AGI are deductible.
- Example: With an AGI of $10 million, the first $50,000 in charitable donations is non-deductible.
3. Cap on Deduction Benefit
Previously, charitable deductions were valued at the taxpayer’s highest marginal rate (up to 37%). Under the OBBBA:
- The maximum deduction benefit is capped at 35%, regardless of the actual marginal rate.
4. Timing Advantage: The 2025 Window
The AGI floor and deduction cap do not apply for the 2025 tax year, creating a unique planning opportunity:
- Accelerate large charitable gifts into 2025.
- Donor-advised funds (DAFs) are particularly advantageous this year.
Strategic Illustration: Planning a $1 Million Gift
Scenario: A HNWI with a $10 million AGI plans to donate $1 million to a public charity.
- In 2025: No AGI floor or deduction cap and full $1 million potentially deductible a 37%, yielding a $370,000 tax benefit.
- In 2026: $50,000 (0.5% of AGI) is non-deductible, while the remaining $950,000 is deductible at 35%, yielding a $332,500 tax benefit. This is a net loss of $37,500 in tax benefit compared to 2025.
Planning Strategies for HNWIs
- Accelerate Giving in 2025: Maximize deductions by making significant contributions before the AGI floor and rate cap take effect.
- Bunch Contributions: Consolidate multiple years of giving into a single year to surpass the AGI floor and enhance deductibility.
- Donate Appreciated Assets: Contribute long-term stocks or real estate to avoid capital gains and receive full fair market value deductions.
- Leverage Donor-Advised Funds (DAFs): Make a large contribution in 2025 to receive an immediate deduction and distribute grants over time.
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Donor-Advised Funds: A Tactical Tool
A DAF allows donors to:
- Secure a 2025 deduction at 37% before OBBBA limits apply.
- Maintain flexibility in grantmaking.
- Benefit from tax-free investment growth within the fund.
For example, a $2 million donation to a DAF in 2025 secures a full deduction at 37%. The donor can support various causes gradually, even after OBBBA restrictions begin.
Note: Starting in 2026, DAF contributions may not qualify for the above-the-line deduction and could face additional scrutiny.
Charitable Remainder Trusts (CRTs): Long-Term Planning
A CRT is an irrevocable trust that:
- Provides income to the donor or beneficiaries for life or a term of years.
- Delivers an immediate partial deduction based on the present value of the remainder interest.
- Enables capital gains deferral when funded with appreciated assets.
For example, a HNWI transfers $5 million in appreciated stock to a CRT. The trust sells the stock tax-free, reinvests the proceeds, and pays the donor 5% annually. The remainder goes to charity after 20 years. This is ideal for income diversification, estate tax reduction and sustained charitable impact.
Integrate With Estate Planning
Charitable vehicles can reduce estate tax exposure and create a lasting legacy. Aligning your philanthropic giving with estate planning ensures your values continue to shape the legal landscape long after retirement.
Final Thoughts
The OBBBA reshapes the charitable giving landscape for affluent donors. While it introduces constraints, it also opens doors for strategic tax planning. HNWIs should act swiftly to capitalize on the 2025 window and consult with their tax advisors to align philanthropic goals with optimal tax outcomes.
Author: Nisha Bhanushali, CPA | [email protected]
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