Kyle Penney ETCF

After months of work and thousands of soundbites from all points along the political spectrum, Congress delivered, and the President signed, the Big, Beautiful Bill. H.R. 1 is the budget reconciliation bill which is probably the most substantial piece of federal legislation that will be passed by Congress this year. Whether or not you view the bill as beautiful, there is no question is it big. It is a huge bill, 870 pages in length, which reads like a giant proofreader’s scratch pad. If you try to read it, it is almost completely void of any coherent thought because it is simply directing hundreds of changes that should be made to current U.S. laws. In my last column, I urged readers to take a look at the draft bills and let your voice be heard if there were items in them that you support or oppose. The time for expressing your opinion in hopes of affecting the final bill has now passed, and we can now examine what the bill really did that could impact the charitable sector.

Title 26 of the U.S. Code is the Internal Revenue Code, otherwise known as the tax code. It is the roughly 6,000 pages of federal law describing in detail how taxes are levied and collected. The tax code describes in very precise detail which financial resources are taxable and how to compute the tax. It is the nuances in the code, written by our elected representatives, which provide incentives to encourage certain behaviors and deterrents to discourage other behaviors. In terms of how this affects charitable giving, I often say, tax policy does not make people charitable, but tax policy often affects the timing and amount of their charitable giving.

The One, Big, Beautiful Bill included several notable elements which affect charitable giving. First, the higher standard deduction that was first introduced in the 2017 Tax Cuts and Jobs Act was made permanent. This means most taxpayers will not have enough combined charitable contributions, mortgage interest expense and other potential deductions to exceed the standard deduction. It is nice to have a higher standard deduction for all taxpayers, but the higher limit has reduced the need to actually “earn” the deduction with documented charitable giving. This has, for the past eight years, been a concern for the nonprofit community, because it effectively eliminated the incentive for charitable giving for most taxpayers. To address this, and to reinstitute the incentive for charitable giving for all tax filers, the new law has created a charitable deduction for non-itemizers. Starting in 2026, people who take the standard deduction can also take an additional deduction of $1,000 per individual or $2,000 per married couple for charitable contributions. There has been a decline for many years in the number of individuals making charitable contributions, so this new incentive will hopefully attract more individuals at all income levels to make charitable giving a part of their annual financial plans.

The final version of the bill also included a new tax credit of up to $1,700 per year for contributions to a nonprofit which grants scholarships to qualifying lower income students attending K-12 public, private or religious schools. This provision is essentially a federal school choice option which allows individuals to make tax-favored contributions to organizations providing scholarships to students so they can attend private or religious elementary and secondary schools.

The new tax law also included a few less-desirable charitable provisions, including a 0.5% floor for itemized charitable deductions for individuals and a 1% floor for corporate charitable gifts. This new 0.5% floor on individuals means not all of their charitable contributions are deductible if they itemize, but only contributions exceeding 0.5% of their adjusted gross income. Similarly, corporations can deduct up to 10% of their net income, but with the new floor, they can only deduct contributions which exceed 1% of their net income, effectively limiting their contributions to 9% of net income. It is speculated that these new floors were added so higher income individuals and corporations would essentially cover the cost of bringing back the new $1,000/$2,000 non-itemizer tax deduction described earlier.

The bill was a mixed bag of winners and losers for charitable giving. Colleges and universities will pay higher excise taxes on investment income, up to 8% if their endowment exceeds $2 million per student, while the increased excise tax on larger private foundations ultimately ended up on the cutting floor. With the positive and negative changes included in this bill, we should all count our blessings that tax policy is not the primary motivator for charitable giving. Navigating the new tax laws to find the best opportunities to support your favorite charities may be your next best opportunity to Give Well.

— Guest columnist Kyle Penney is President of East Texas Communities Foundation and a Chartered Advisor in Philanthropy.  Philanthropy builds community and changes lives. ETCF supports philanthropy by providing simple ways for donors to achieve their charitable goals. To learn more about ETCF or to discuss your charitable giving, contact Kyle at 866-533-3823 or email questions or comments to etcf@etcf.org. More information is available at www.etcf.org.