One Big Beautiful Bill Act’s (OBBB) changes to the charitable deduction are forcing both individual and corporate donors to rethink their philanthropic strategies. New deduction floors are prompting some taxpayers to explore strategies like gift “bunching” and the use of donor-advised funds (DAFs).
New Floors and Limitations
The OBBB introduced new rules for charitable deductions under IRC § 170, effective for tax years beginning in 2026. These changes impact both individuals and corporations.
- Individual itemizers: The OBBB established a new floor of 0.5% of adjusted gross income (AGI) – only aggregate charitable contributions exceeding this amount are deductible. Additionally, for individuals in the top tax bracket, the value of the deduction is capped, reducing the tax benefit from 37% to 35%.
- C corporations: A similar new floor applies – donations are only deductible to the extent they exceed 1% of the company’s taxable income. The existing 10% of taxable income ceiling remains in place.
- Individual non-itemizers: A permanent deduction is now available for cash contributions, capped at $1,000 for single filers and $2,000 for joint filers.
Rise of Donor-Advised Funds
For individual itemizers and corporations, the new OBBB floors make it more difficult to receive a tax benefit from smaller, regular donations. In response, many are turning to a strategy known as “bunching” – consolidating several years’ worth of planned giving into a single year to exceed the deduction floor.
This strategy can be facilitated through the use of a donor-advised fund (DAF). DAFs are charitable giving accounts that allow donors to make a large, tax-deductible contribution in one year and then recommend grants from the fund to their chosen charities over time.
“This is an opportunity going forward, to make sure that you meet that floor, that you’re bunching gifts appropriately so that you can take advantage of that deduction,” said Julie Sunwoo, president of the national DAF account provider DAFgiving360. Use of DAFs had already been increasing, said Sunwoo, but she’s seen an “uptick” after the OBBB changes. And that includes both more funds going into DAFs and more grants to charities. According to a recent press release, DAFgiving360 saw a 28% increase its donors’ dollars granted to charity in 2025.
In addition to facilitating tax strategies like bunching, DAFs provide donors with increased flexibility for long-term philanthropic planning. Sunwoo told Checkpoint that once an account is funded, it operates like a dedicated charitable portfolio, allowing donors to decide on the timing and pace of their grants. This often results in sustained local support, she explained. She noted that 78% of DAFgiving360’s donors direct their grants to charities within their local communities.
The structure also enables a rapid response to urgent needs, Sunwoo added. “Because they have this pool of money that’s dedicated to charity, they can donate on the spot to help people in need right away,” she explained. This can be particularly valuable for disaster relief. Last year, DAFgiving360 donors contributed more than $200 million for disaster relief efforts.
Sunwoo also advises donors to “think beyond cash,” noting that contributing appreciated non-cash assets like stocks to a DAF can increase the value of the gift while allowing the donor to potentially avoid capital gains taxes. A record 74% of DAFgiving360’s contributions in 2025 were in the form of non-cash assets, a trend driven in part by donors looking to maximize gifts ahead of the OBBB’s changes.
Corporations Explore Donation Options
According to an EY analysis, the OBBB changes could reduce annual corporate giving by an estimated $4.4 to $4.8 billion. In addition, the changes “trigger a need” for companies to “rethink” charitable giving strategies, EY’s Lauren Rogge said during the firm’s February 3 webinar. She cited a recent Conference Board survey that found almost two-thirds of executives expect the OBBB changes to impact their companies’ 2026 charitable giving.
Timing is a critical planning tool, explained EY’s Brandon Carlton. Like individual itemizers, corporations can consolidate several years of planned donations into a single tax year. “A company could donate three years’ worth of intended donations to, say, a donor-advised fund or to a foundation in a single year,” Carlton said. “That donated amount is subject to a 1% haircut, not the three separate 1% haircuts if it were donated over three separate years.”
But corporations have other options beyond the use of a DAF or foundation and gift bunching. Companies that donate their own products are examining inventory-specific rules, said Carlton. Tax regulations may permit the cost of donated inventory to be treated as a cost of goods sold (COGS) rather than a charitable contribution, thereby avoiding the 1% floor. This generally applies to inventory that was not on hand at the beginning of the year, he explained.
And the tax code allows an accrual-basis corporation to accelerate a deduction into a prior year if its board of directors authorizes the contribution before year-end and the payment is made within the first 3.5 months of the following year, Carlton noted.
Another strategy is to re-evaluate whether certain payments qualify as fully deductible business expenses under IRC § 162 rather than charitable contributions subject to the new floor. “A lot of payments, or maybe a portion of certain payments, might be more properly treated as business expenses,” said Carlton. He gave the example of sponsoring a charity event and receiving a large banner in return, which could be considered an advertising expense.
For more on the charitable deduction, see Checkpoint’s Federal Tax Coordinator 2d ¶ K-2800.
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