The Nonprofit Sector
According to a report released earlier this year by the Federal Reserve Bank of Richmond, nonprofit organizations contribute more than 5 percent of the nation’s GDP and account for almost 10 percent of “private sector” employment.[i]
Those are impressive statistics and, understandably, may be interpreted as characteristic of an industry that constitutes a significant economic driver, at least until one realizes the significant “public” source of the nonprofit sector’s revenues.
Government Support
At about the same time, the Urban Institute released a study,[ii] according to which about one-third of “charitable” organizations receive grants from federal, state, and local governments; coincidentally, one-third of the revenue of these nonprofits comes from government sources.[iii]
In the case of large nonprofits that mostly provide social services, almost half of their revenue comes from government funding.[iv] Between 60 percent and 80 percent of government-dependent nonprofits would be operating at a loss, or would have to close their doors, without those grants.
Private Sources
Still, most nonprofits generate, on average, 20 percent of their revenues from the program services they offer.
More importantly for purposes of this post, charitable nonprofits raise almost one-third of their funds through private donations[v] made by individuals, foundations, and businesses.[vi]
Indeed, charitable giving by private individuals has, in one form or another, played an important role in American society since the country’s founding.
American “Generosity”
In the first volume of his seminal work on American society, Alexis de Tocqueville observed that:
“great sacrifices may be obtained from the members of a commonwealth by an appeal to their understandings and their experience; each individual will feel the same necessity for uniting with his fellow-citizens to protect his own weakness; and as he knows that if they are to assist he must co-operate, he will readily perceive that his personal interest is identified with the interest of the community.”[vii]
In other words, Americans in de Tocqueville’s time acted charitably because it was in their own self-interest to do so; they acted in the interest of their community because doing so would promote their own well-being.
In the second volume of this work, de Tocqueville wrote:
“. . . the inhabitants of the United States almost always manage to combine their own advantage with that of their fellow-citizens . . . In the United States hardly anybody talks of the beauty of virtue; but they maintain that virtue is useful, and prove it every day. The American moralists do not profess that men ought to sacrifice themselves for their fellow-creatures because it is noble to make such sacrifices; but they boldly aver that such sacrifices are as necessary to him who imposes them upon himself as to him for whose sake they are made.”[viii]
He continued:
“The principle of interest rightly understood produces no great acts of self-sacrifice, but it suggests daily small acts of self-denial. By itself it cannot suffice to make a man virtuous, but it disciplines a number of citizens in habits of regularity, temperance, moderation, foresight, self-command; and, if it does not lead men straight to virtue by the will, it gradually draws them in that direction by their habits. . . Every American will sacrifice a portion of his private interests to preserve the rest.”
Has the World Changed?
The identity of today’s “American” differs in many ways from that of the “citizen” to which de Tocqueville referred in his work.
In addition, the average individual donor’s motivation for charitable giving has probably changed in that it is now less informed by the kind of self-interest that was “identified with the interest of the community” during the country’s infancy.
In its place, we have statutorily provided and publicly subsidized financial incentives, some of which we’ll review shortly, that have influenced the manner or form by which private citizens choose to share their resources with charitable organizations and, by extension, with the community at large.
In fact, it has been my experience that nearly every “charitably inclined” business owner is interested[ix] in at least one of the following: reducing as much as possible the net economic “cost” arising from their transfer of property to a charity (i.e., maximizing their tax savings); optimizing their economic return from the contribution (for example, the cash flow associated with any retained interest in the property, or the investment of the tax savings);[x] or controlling the ultimate disposition of the contributed property[xi] and enjoying the influence and public attention that comes with such control.[xii]
Perhaps the most important development, but one that was likely unforeseen in de Tocqueville’s time, has been the greatly expanded role of government, and the extent of its intervention – in terms of funding and the leverage it provides over nonprofit programs and activities – in areas that were previously under the jurisdiction of nonprofit entities and their private supporters, including certain matters of social welfare.
When viewed from that perspective, one may describe the activities of many nonprofits to include reducing the burdens of government.
In turn, the financial support given by private individuals to such organizations may be characterized, not unfairly, as the payment of additional taxes,[xiii] albeit with the distinction that an individual donor may be able to direct how such “voluntary taxes”[xiv] are to be expended.
With that, let’s see to which nonprofit organizations Americans pay these quasi-taxes.
Giving in the USA
According to Giving USA, private persons contributed an estimated $592.50 billion to U.S. charities in 2024.[xv]
Approximately 74 percent of this amount came from individuals: $392.45 billion from lifetime gifts and $45.84 billion from bequests, representing 66.24 percent and 7.74 percent, respectively, of total giving.
The approximately 90 percent of individual taxpayers who did not itemize their deductions contributed around 35 percent of charitable giving by individuals,[xvi] while itemizers contributed 65 percent.[xvii] The percentage of itemizers that claimed a charitable contribution deduction, and the amount of the contribution they reported, increased directly in relation to their adjusted gross income.
Business corporations[xviii] accounted for approximately $44.40 billion, or 7.5 percent of the total.[xix] Private foundations distributed $109.81 billion (18.5%).[xx]
Almost 62 percent of these charitable dollars went to organizations engaged in religious (23%), human services (14%), education (14%), and public-society benefit (11%) activities; 11 percent went to grantmaking foundations; the balance went to a variety of other charitable organizations, including those engaged in arts, cultural, environmental, and other activities.[xxi]
Donor-advised funds and private foundations together took in about 35 percent of all individual giving.[xxii]
Along Came OBBBA
OBBBA[xxiii] made some significant changes to the rules that govern the tax treatment of charitable contributions like the ones described above. Most of these amendments to the Code will apply to taxable years beginning after December 31, 2025, though a few have retroactive effect. Thus, it’ll be at least a couple of years before the economic impact of these changes can be determined.
Before considering some of these soon-to-be-effective changes, let’s review the basic pre-OBBBA charitable contribution rules.[xxiv]
The Code Pre-OBBBA
The Code tries to encourage taxpayers, and especially individuals,[xxv] to contribute funds and other property to certain organizations, the activities of which Congress has determined are beneficial to society as a whole.[xxvi]
Incentive
In general, the Code provides an incentive for taxpayers[xxvii] to make charitable contributions to qualified organizations[xxviii] by allowing taxpayers, for purposes of computing their taxable income, to deduct[xxix] the amount of cash and the fair market value of property so contributed.[xxx]
The availability and the amount of this income tax deduction for charitable contributions is subject to certain limitations that depend, among other things, on the type of taxpayer, the type of property contributed, and the recipient organization.[xxxi]
Limitations – Overview
Among the limitations mentioned above are those that:
- depend on the type of taxpayer making the contribution (an individual who claims itemized deductions or a corporation)
- reduce the amount of the deduction allowable for a taxable year with respect to a charitable contribution of property, depending on the type of property contributed (cash or property in kind)[xxxii]
- reduce the amount of the deduction based upon the type of charitable organization to which the property is contributed (a public charity or private foundation)[xxxiii]
- cap the amount of a taxpayer’s deduction depending on the income of the taxpayer.[xxxiv]
Itemizers
For individuals, the deduction for charitable contributions is generally available only to a taxpayer who elects to itemize deductions.[xxxv]
Before OBBBA, an individual who did not itemize deductions could not claim a deduction for a charitable contribution.
That said, a nonitemizer was allowed to deduct up to $300 ($600 in the case of a joint return) for certain charitable contributions made during the tax year ended December 31, 2021. The deduction was not available for contributions made after 2021.[xxxvi]
Type of Property and Recipient; Income-Based
For individual taxpayers, the income-based limitation on the charitable contribution deduction is higher for gifts made to public charities than for gifts made to private foundations.[xxxvii]
Specifically, in any taxable year, the amount deductible by an individual as a charitable contribution is limited to a percentage of the taxpayer’s contribution base. The applicable percentage of the contribution base varies depending on the type of recipient organization and the type of property contributed. The contribution base is defined as the taxpayer’s adjusted gross income computed without regard to any net operating loss carryback.[xxxviii]
Contributions of cash to a public charity generally were deductible up to 60 percent[xxxix] of the donor’s adjusted gross income (‘‘AGI’’),[xl] 30 percent for capital gain property,[xli] or 50 percent for non-capital gain property other than cash.[xlii] By contrast, contributions to most private foundations generally were deductible up to 30 percent of the donor’s AGI, or 20 percent for capital gain property.[xliii]
Charitable contributions that exceeded the applicable percentage limit generally could be carried forward for up to five years.[xliv] In general, contributions carried over from a prior year were taken into account after contributions for the current year that were subject to the same percentage limit.
Corporations
For corporate taxpayers, the deduction for any charitable contributions made within the taxable year was generally limited to 10 percent of the corporation’s taxable income for such year,[xlv] computed without regard to certain deductions.[xlvi]
Charitable contributions over the percentage limitation in any taxable year could be carried forward to the next five taxable years.[xlvii]
The Property Contributed
For all taxpayers, a gift of capital gain property to a public charity generally was deductible at the property’s fair market value,[xlviii] whereas a gift of capital gain property (other than publicly traded stock) to most private foundations was deductible at the taxpayer’s adjusted basis (unrecovered investment) in the property.[xlix]
Charitable contributions of cash were deductible in the amount contributed.
In general, contributions of capital gain property to a qualified charity were deductible at fair market value, with certain exceptions. For this purpose, capital gain property means any capital asset, or property used in the taxpayer’s trade or business, the sale of which at its fair market value at the time of contribution would have resulted in long-term capital gain.
Contributions of other appreciated property generally were deductible at the donor’s basis in the property.
A qualifying charitable contribution did not include an amount that was treated as a contribution in the taxable year by reason of being carried forward from a prior contribution year.[l]
OBBBA
Generally speaking, every time Congress has passed tax legislation related to charitable giving, it has either sought (a) to encourage gifts to charities, or (b)(i) to curb abusive practices in the making of such gifts, and (ii) to eliminate unintended consequences arising from the making of such gifts.
Insofar as “conventional” charitable giving is concerned, it’s difficult to say whether OBBBA will accomplish any of the foregoing goals.
Individuals
As we saw earlier, before OBBBA the Code imposed a cap upon the amount of an individual taxpayer’s charitable contribution deduction for a taxable year based upon a percentage of the taxpayer’s contribution base, which in turn was based upon the type of property contributed and the type of organization to which such property was contributed.
The 60 Percent Cap
OBBBA made permanent[li] the enhanced deduction, based on 60 percent of the individual taxpayer’s contribution base, for contributions of cash to certain public charities.[lii]
This limitation was scheduled to revert to the historical 50 percent cap for cash contributions to public charities made in taxable years beginning after December 31, 2025.
Although this change is welcome news for those wealthier donors who are in a financial position to take advantage of the enhanced deduction, the benefit arising therefrom is reduced by other OBBBA changes that we’ll describe shortly (i.e., the introduction of a floor and the reduction of the marginal value of the deduction).
In addition to supplanting the 50 percent cap for cash contributions,[liii] OBBBA extended the 60 percent cap to effectively cover non-cash contributions to the same public charities under certain circumstances. Thus, if an individual taxpayer made charitable contributions of both cash and other property during the taxable year to one or more qualifying public charities, and the amount of cash contributed was below the 60 percent cap, the remaining portion of the cap would be added on top of any other cap that applied to the other property, thereby increasing the amount of the taxpayer’s deduction for the year.[liv]
Floor
OBBBA went a step further by adding a “floor,” effective for contributions of any property to any qualifying organization made in taxable years beginning on or after January 1, 2026.
Specifically, any charitable contribution otherwise allowable to an individual taxpayer as a deduction for the taxable year shall be allowed only to the extent that the aggregate amount of the taxpayer’s contributions for such year exceeds 0.50 percent of the taxpayer’s contribution base for the taxable year.[lv]
Thus, the amount of the taxpayer’s contributions for the taxable year that does not exceed 0.50 percent of the taxpayer’s contribution base for such year shall not be allowed as a deduction on that year’s income tax return. Conceivably, this may result in the disallowance of a not insignificant itemized deduction in terms of absolute dollars.[lvi]
However, this disallowance may not result in the total loss of the deduction for the disallowed amount, provided the taxpayer’s contributions for the year in question exceed the taxpayer’s cap for the year. In that case, the amount of the excess over the taxpayer’s cap that is carried forward under any carryover rule will be increased by the amount disallowed by the floor.[lvii]
At that point, the 0.50 percent floor will be applied for the carryforward year, first with respect to the contributions made in such year and then with respect to the carryforward from an earlier year. The amount disallowed under the floor for an earlier year will not be deductible in a carryforward year except to the extent the taxpayer’s cap for the year exceeds the sum of the taxpayer’s current contributions and their carryforward from earlier years.[lviii]
However, if the taxpayer’s contributions for the year do not produce a carryforward (i.e., they do not exceed the cap), then the portion of the contribution that does not exceed the floor will never be deductible.
Further Limiting the Tax Benefit
In the case of an individual taxpayer, the amount of itemized deductions – including the charitable contribution deduction – otherwise allowable to the taxpayer for the taxable year in which such a contribution is made shall be reduced by 2⁄37 of the lesser of: (1) the amount of such itemized deductions, or (2) so much of the individual taxpayer’s taxable income for the year as exceeds the dollar amount at which the 37 percent rate bracket begins.[lix]
Thus, the maximum tax benefit that may be realized by a high-income individual taxpayer – i.e., one whose taxable income puts them in the 37 percent rate bracket – as a result of their charitable contributions during a taxable year will be limited to 35 percent thereof.[lx]
The deduction that is effectively disallowed as a result of this limitation is not carried forward and, therefore, is lost.
How Individual Taxpayers May Respond
In response to the foregoing changes, taxpayers are being advised to make donations before the end of the 2025 taxable year; i.e., to accelerate contributions before the above-described limitations go into effect at the start of 2026. If a taxpayer has not yet determined the charitable recipient for their gift, they are being advised to “park” the gift with a donor-advised fund to obtain the pre-limitation tax benefit and give themselves some time to decide the appropriate charitable beneficiary.
In addition, looking forward, taxpayers are being advised to “bunch” into one taxable year the future charitable contributions they would otherwise have made over several years, in order to avoid the adverse tax consequences of the new floor.
Relatedly, and as described above with respect to gifts accelerated into 2025, taxpayers may consider parking their bunched charitable gifts with donor-advised funds in order to capture the desired tax benefit while sticking to their plans for timing the selection of, and delivery of grants to, the ultimate nonprofit beneficiaries.
Nonitemizers
As mentioned earlier, the short-lived charitable deduction allowed to an individual taxpayer who otherwise claimed the standard deduction[lxi] in determining their taxable income expired at the end of 2021.
OBBBA reinstated the deduction for taxable years beginning after December 31, 2024, and before January 1, 2029.[lxii] As in its first iteration, the reinstated provision allows an individual taxpayer who does not itemize deductions to claim a deduction for contributions of cash to certain public charities.[lxiii]
Moreover, OBBBA increased the maximum deduction amount to $2,000 for taxpayers who are married and filing jointly, and to $1,000 for all other taxpayers.
Corporate Taxpayers
In addition to setting a floor for charitable contributions for individuals, OBBBA set a similar threshold for such contributions by corporations.[lxiv]
Specifically, OBBBA provides that any charitable contribution by a corporation, for which a deduction would otherwise be allowable for any taxable year, shall be allowed only to the extent that the aggregate of such contributions for the year exceeds 1.0 percent of the corporate taxpayer’s taxable income for the taxable year (the new floor), and does not exceed 10.0 percent of the taxpayer’s taxable income for the taxable year (the existing cap).
The new provision allows a corporation, in determining its taxable income for a taxable year, to claim a deduction for a charitable contribution only to the extent that the aggregate amount of charitable contributions by the corporation for the year exceeds 1.0 percent of the corporation’s taxable income for the year (the ‘‘one-percent floor’’), and does not exceed 10.0 percent of the taxpayer’s taxable income for such year (the ‘‘10-percent limit’’).
If the corporation’s total charitable contributions for the taxable year are below the 1.0 percent floor – based on the corporation’s taxable income for such year – the otherwise available deduction for the contributions is disallowed; what’s more, instead of being carried forward (as in the case of individual taxpayers), the deduction is lost.
By contrast, contributions in excess of the 10-percent ceiling may be carried forward to the five taxable years immediately succeeding the contribution year and be treated as paid in any one of such years.
Any carryforward is applied after contributions made in the current taxable year for the purposes of the one-percent floor and 10-percent limit. The amount of charitable contributions carried forward is reduced to the extent that the carryforward otherwise would reduce taxable income and increase a net operating loss carryover to a succeeding taxable year.
The provision applies to taxable years beginning after December 31, 2025.
Observations
Query what effect, if any, the new floor will have on charitable giving by corporations.
For one thing, it doesn’t apply to S corporations; charitable contributions made by an S corporation are passed through to its shareholders and treated as having been made by them directly for purposes of applying the new charitable contribution floor.[lxv]
As a group, taxable C corporations are already the smallest sector of contributors to charitable organizations; that includes corporate employers who match charitable gifts by their employees. How would the loss of a deduction affect corporate giving?
If we start from the premise, as I do, that such contributions by a corporation are made for other than charitable reasons – for example, to make employees happy, or to generate goodwill in the corporation’s community – then it is likely the corporation will find other ways to accomplish the desired results while also generating a tax deduction for the associated costs.[lxvi]
What Was the Point?
It seems like OBBBA was not especially concerned with incentivizing wealthier taxpayers, who in terms of absolute dollars already represent the largest share by far of charitable giving;[lxvii] instead, it throws up a new challenge and scales back a benefit.
At the same time, it seems encourage lower income individuals – the nonitemizers who already donate a disproportionately larger portion of their income to charity than do wealthier taxpayers – to give more, although only for a limited period.[lxviii]
Missed Opportunities?
Congress could have passed more impactful changes than those described above.
Why weren’t the minimum distribution rules for grant-making private foundations[lxix] revised to require much larger annual payouts? Why weren’t minimum distribution rules introduced for donor-advised funds?
In either case, why wasn’t a termination date mandated by which all of the contributed funds had to be distributed?[lxx]
Why are all charitable contributions to public charities treated “equally” regardless of the specific public purpose served by the recipient nonprofit? Should they be?
For example, should $1.0 million contributed to an account in a donor-advised fund or to a university with a multi-billion-dollar endowment, or to a large performing arts organization generate the same tax/economic benefit for the donor than a $1.0 million contribution to an organization that provides shelter, food, or healthcare for the destitute, or that promotes the education of children in “less affluent” communities?
Which of these functions is more closely related to a responsibility of government? Should such contributions be subject to any floor or ceiling?
In short, why not encourage and incentivize Americans to assume a greater responsibility for each other’s well-being, instead of leaving it for government?
We have to be reminded, and understand, as de Tocqueville put it, that “sacrifices are as necessary to him who imposes them upon himself as to him for whose sake they are made.”
The opinions expressed herein are solely those of the author(s) and do not necessarily represent the views of the firm.
[i] GDP of approximately $30 trillion; private sector employees of approximately 136 million. https://www.richmondfed.org/research/national_economy/macro_minute/2025/how_big_is_the_nonprofit_sector.
[ii] https://www.urban.org/research/publication/what-financial-risk-nonprofits-losing-government-grants#:~:text=Without%20these%20grants%2C%20most%20nonprofits,by%20nonprofit%20size%20and%20subsector..
[iii] Candid reports that 55% of organizations with budgets above $5 million receive at least one government grant. https://candid.org/blogs/how-many-nonprofits-rely-on-government-grants-data/. Based on data collected from organizations described in IRC Sec. 501(c)(3) that file full Forms 990; roughly one-sixth of all U.S. nonprofits. In total, these government grants represented almost three times the amount of private foundation grants.
[iv] https://www.philanthropyroundtable.org/resource/how-government-funding-compromises-nonprofit-independence/. Federal grants made to nonprofits have more than doubled since 2008. Philanthropy Roundtable indicates there are studies suggesting that government funding crowds out private giving.
https://www.philanthropy.com/news/a-third-of-u-s-nonprofits-that-serve-communities-lost-government-funding-in-early-2025/.
[v] https://nonprofitquarterly.org/nonprofits-by-the-numbers-sectors-vital-role-in-american-life/#:~:text=US%20nonprofits%20generate%20a%20majority,and%20dues%20(6%20percent).
[vi] Total government funding for nonprofits amounts to around three times total foundation funding.
[vii] Democracy in America, Book One, Introductory Chapter, Alexis De Tocqueville.
[viii] Democracy in America, Book Two, Chapter VIII, Alexis De Tocqueville.
[ix] There are some exceptional people out there who live by a different code:
“If among you, one of your brothers should become poor, in any of your towns within your land that the Lord your God is giving you, you shall not harden your heart or shut your hand against your poor brother, but you shall open your hand to him and lend him sufficient for his need, whatever it may be. Take care lest there be an unworthy thought in your heart and you say, ‘The seventh year, the year of release is near,’ and your eye look grudgingly on your poor brother, and you give him nothing, and he cry to the Lord against you, and you be guilty of sin. You shall give to him freely, and your heart shall not be grudging when you give to him, because for this the Lord your God will bless you in all your work and in all that you undertake. For there will never cease to be poor in the land. Therefore I command you, ‘You shall open wide your hand to your brother, to the needy and to the poor, in your land.’ Deuteronomy 15:7-11.
[x] Think split-interest trusts, for example.
[xi] In other words, securing a current tax deduction while reserving the ability to select the charities that will benefit from the contribution. Grant-making private foundations and donor-advised funds are the prime examples.
[xii] A relatively small, but not insignificant, number of wealthy folks (by any measure) lose interest in transferring property to charity when they learn that the property to be contributed would no longer be available to them for their personal or business use. Others change their minds about transferring property to charity when they realize the transfer will not result in an accretion of value to their balance sheet or bottom line. Many more have no interest in benefitting anyone other than members of their families whom they will never know. (Ah, the dynasty trust.)
According to some data, the self-employed as a group tend to give less to charity. https://www.philanthropyroundtable.org/almanac/who-gives-most-to-charity/
[xiii] Any discussion of taxing the rich has to consider charitable giving, at least with respect to organizations and activities that may property be seen as the responsibility of government. (That’s another debate.) Approximately one-third of lifetime charitable giving comes from the so-called one percent, while approximately 86 percent of charitable bequests comes from the top 1.4 percent.
[xiv] Speaking of which, you may have heard some people referring to the purchase of state lottery tickets as another form of voluntary tax.
Over the last few years, government has legalized various activities that it had previously banned or restricted because of the actual or potential harm upon members of the public who participate in such activities. The sole purpose for the policy reversal? The ability to tax the businesses and the consumers who engage in the once prohibited activities.
Can you think of a more insidious tax than one that relies upon the promotion of harmful behavior?
[xv] “Giving USA 2025: The Annual Report on Philanthropy for the Year 2024.” This annual report on the sources and uses of charitable giving in America is published by Giving USA Foundation, which is a public service initiative of The Giving Institute. It is researched and written by the Indiana University Lilly Family School of Philanthropy at IU Indianapolis.
[xvi] Query how much of the nonitemized charitable contributions were motivated by religion. I’m willing to guess a very substantial portion.
[xvii] Urban-Brookings Tax Policy Center, Charitable Giving by Itemizers and Nonitemizers for 2023. I couldn’t find a more recent breakdown according to tax brackets.
[xviii] References to corporations in this post are to business corporations, not to those organized and operated as nonprofits.
[xix] Please remember that the for-profit business corporation’s reason for being is to make money for its shareholders – “persons” who are, or who are ultimately owned by, individuals. A later post will consider the reasons often cited for corporate giving.
[xx] According to the National Philanthropic Trust’s “Donor Advised Fund Report” for 2024, DAFs received approximately $59.43 billion in contributions during 2023 and made grants during that period of $54.77 billion. The annual payout rate for DAFs was almost 24 percent for 2023, while the payout rate for private foundations in 2024 was 8.7 percent. In 2023, there were approximately 1.782 million donor-advised fund accounts.
[xxi] As of 2023, there were 1.6 million organizations described in IRC Sec. 501(c)(3). See Candid.org. There are approximately 350,000 religious, 261,000 educational, 160,000 human services, 134,000 arts & culture, and 66,000 public-society benefit nonprofit organizations in the U.S. in 2025. See CauseIQ.com.
[xxii] National Philanthropic Trust and Giving USA.
[xxiii] P.L. 119-21. The “One, Big, Beautiful Bill Act.”
[xxiv] We’ll be considering only the changes to “conventional” forms of charitable contributions. For example, we will not be looking at the scholarship granting organizations described in new IRC Sec. 25F, which will not be effective until 2027 in any case.
[xxv] Businesses are not organized for charitable purposes. That said, their success can have very positive effects upon the communities in which they do business and in which their employees and owners reside.
[xxvi] Implicit in this determination is the assumption that, in the absence of many such organizations, the services they provide would more than likely have to be undertaken by the government. Think hospitals and schools.
[xxvii] IRC Sec. 170(a). Generally, an individual taxpayer who itemizes deductions, or a corporate taxpayer
[xxviii] The term “charitable contribution” is defined in IRC Sec. 170(c), which identifies the organizations to which deductible transfers may be made; in general, organizations described in IRC Sec. 170(b) and Sec. 501(c)(3).
[xxix] In the case of individuals, these would otherwise be treated as nondeductible personal expenditures. Deductions, as the Courts and the IRS are always reminding taxpayers, are a matter of legislative grace. A taxpayer must satisfy the specific statutory requirements of the deduction claimed and bears the burden of proving entitlement to such deduction.
[xxx] In some cases, the deduction will be contingent upon the contribution’s being structured in the form prescribed by the Code. See, for example, IRC Sec. 170(f)(2) with respect to transfers in trust.
[xxxi] IRC Sec. 170.
[xxxii] For example, see IRC Sec. 170(e).
[xxxiii] For example, see IRC Sec. 170(b)(1)(A) vs 170(b)(1)(B).
[xxxiv] See the reference to an individual’s contribution base in IRC Sec. 170(b)(1)(H) and to a corporation’s taxable income in Sec. 170(b)(2).
[xxxv] IRC Sec. 63(d) and (e).
[xxxvi] IRC Sec. 170(p). Contributions taken into account for this purpose included only contributions made in cash during the taxable year to a charitable organization described in IRC Sec. 170(b)(1)(A) – basically, public charities – other than contributions to (a) a supporting organization (described in IRC Sec. 509(a)(3)) or (b) for the establishment of a new, or maintenance of an existing, donor advised fund (as defined in IRC Sec. 4966(d)(2)). Contributions of noncash property, such as securities, were not treated as qualified contributions.
[xxxvii] See IRC Sec. 509 for the differences between these two types of charitable organizations.
[xxxviii] IRC Sec. 170(b)(1)(H).
[xxxix] Before OBBBA, for contributions made in taxable years beginning after December 31, 2025, the 60-percent limit was to be reduced to 50 percent. IRC Sec. 170(b)(1)(G)(i).
[xl] The charitable percentage limits are applied to the donor’s “contribution base,” which is the donor’s AGI computed without regard to any net operating loss carryback to the taxable year under IRC Sec. 172. IRC Sec. 170(b)(1)(H).
[xli] IRC Sec. 170(b)(1)(B).
[xlii] The amount of the contribution is generally limited to the adjusted basis for property the sale of which generates ordinary income or short-term capital gain. IRC Sec. 170(e).
[xliii] IRC Sec. 170(b)(1).
[xliv] IRC Sec. 170(b)(1)(G)(ii) and (d).
[xlv] IRC Sec. 170(b)(2)(A).
[xlvi] Specifically, the deductions for charitable contributions under IRC Sec. 170, the dividends received deduction, the deductions allowable to corporations under Subtitle A, Chapter 1, Subchapter B, Part VIII (except IRC Sec. 248), any net operating loss carryback to the taxable year under IRC Sec. 172, and capital loss carryback to the taxable year under IRC Sec. 1212(a)(1), and IRC Sec. 199A(g).
[xlvii] IRC Sec. 170(d)(2)(A). The amount of charitable contributions carried forward are reduced to the extent that the contributions in excess of the percentage limitation reduces taxable income (as computed for purposes of the second sentence of section 172(b)(2)) and increases a net operating loss carryover under section 172 to a succeeding taxable year.
[xlviii] IRC Sec. 170(e)(1). However, contributions of tangible personal property not for an exempt purpose of the donee organization are deductible at the taxpayer’s basis in the property. IRC Sec. 170(e)(1)(B)(i). A special rule determines the aggregate deduction for contributions of certain intellectual property. IRC Sec. 170(e)(1)(B)(iii) and Sec. 170(m).
[xlix] IRC Sec. 170(e)(1)(B)(ii) and Sec. 170(e)(5).
[l] Under section 170(b)(1)(G) or (d)(1).
[li] Only in the sense there is no scheduled sunset date. Can we say with any certainty that anything in the Code is off-limits, regardless of which party is calling the shots?
[lii] IRC Sec. 170(b)(1)(G)(i).
[liii] IRC Sec. 170(b)(1)(G)(iii).
[liv] IRC Sec. 170(b)(1)(G)(i). Thus, the combined amount of cash contributed by an individual taxpayer that qualifies for the 60% cap but falls short of it, plus the taxpayer’s contribution of non-cash property to the same qualifying charities, cannot exceed 60 percent of the taxpayer’s AGI.
[lv] OBBBA Sec. 70425; IRC Sec. 170(b)(1)(I), IRC Sec. 170(d)(1)(C). For example, in the case of an individual taxpayer with AGI of $1 million, their first $5,000 of charitable contribution will not be deductible.
[lvi] Thankfully, OBBBA prescribed the order in which charitable contributions are counted against the floor; specifically, contributions that are subject to a lower AGI-based ceiling are considered first, thereby preserving those contributions that benefit from a higher ceiling.
[lvii] IRC Sec. 170(d)(1)(C). It should be noted that any amount carried forward will be subject to the 0.50 percent floor for each carryforward year. The floor does not apply to carryovers generated by pre-OBBBA contributions.
[lviii] As under pre-OBBBA law – more accurately, under pre-OBBBA regulation – the taxpayer’s contributions for the current year will be considered before the carryforward amount; meaning, the carryforward will be deductible in the current year only if, and to the extent that, the current year deductions fall short of that year’s ceiling. Reg. Sec. 1.170A-10(b)(2).
[lix] I.e., the highest marginal individual income tax rate. OBBBA Sec. 70111; IRC Sec. 68(a).
[lx] Stated differently, the individual taxpayer is taxed at 37 percent but may clam a deduction only at 35 percent.
In 2026, the 37 percent bracket will begin at $640,601 of taxable income for a single filer, and at $768,701 for joint filers.
[lxi] For 2025, the standard deduction is $15,750 for single filers, and $31,500 for joint filers. The Tax Foundation estimates that “nearly 86 percent of taxpayers will take the standard deduction in 2026.”
[lxii] OBBBA Sec. 70424; IRC Sec. 170(p).
[lxiii] OBBBA Sec. 70201(b); IRC Sec. 63(b)(4). Gifts to donor-advised funds and supporting organizations do not qualify.
[lxiv] OBBBA Sec. 70426; IRC Sec. 170(b)(2)(A).
[lxv] If a C corporation is a member of a partnership, the corporation’s share of any charitable gifts by the partnership would be accounted for under the new rules starting in 2026.
[lxvi] IRC Sec. 162. An ordinary and necessary expense; say, corporate sponsorships as advertising for which the corporation expects to receive a benefit?
[lxvii] https://www.philanthropyroundtable.org/almanac/who-gives-most-to-charity/
[lxviii] https://taxpolicycenter.org/briefing-book/how-large-are-individual-income-tax-incentives-charitable-giving#:~:text=An%20income%20tax%20deduction%20for,65%20percent%20(table%201).
[lxix] IRC Sec. 4942.
[lxx] Congress could have borrowed the 20-year term option for charitable remainder trusts.
