The Immense Value in Funding Your Donor Advised Fund Before 2026
Taxpayers who itemize their deductions have been aided by the fact that charitable contributions can reduce their tax liability. While charitable contributions can still be utilized to itemize deductions in 2026, their impact on reducing your taxes is set to change. Due to the passage of the One Big Beautiful Bill Act (OBBBA), there is a closing window on the tax impact of charitable contributions.
Beginning in 2026, there are two notable changes in the law taking effect.
Change #1
The first is that only itemized charitable contributions that exceed 0.5% of a taxpayer’s adjusted gross income (AGI) will be deductible. For example, if a couple’s AGI is $1 million in 2026 and they contribute $50,000 to charities, then only $45,000 is deductible (since 0.5% of $1 million is $5,000, this first $5,000 will be non-deductible).
Change #2
Secondly, OBBBA reduces the value of itemized charitable contributions by 2/37 for taxpayers in the 37% bracket. In effect, this caps the maximum benefit of charitable contributions to 35% for income earners in the highest bracket of 37%.
As such, individuals may consider making further charitable contributions in 2025 while the tax-efficiency of doing so is greater than it will be in 2026. While direct contributions to charities is a viable option, another tool is to utilize a Donor Advised Fund (DAF). This allows individuals the opportunity to ‘bunch’ contributions from multiple years into a single year. It’s important to note that with a DAF, you are not required to give to charities in the same year that you fund the DAF. You are allowed to contribute to charities years down the road. You’re simply receiving the tax deduction in the year that you make the contributions to the DAF.
For example, let’s say you planned to make $300,000 in charitable contributions over the next 3 years ($100,000 per year) and your adjusted gross income is $1 million in each of those years. If you make that $300,000 worth of charitable contributions to your DAF in 2025, then you can offset 37% for taxes ($111,000). If you instead chose to contribute $100,000 in 2026, 2027, and 2028, then under next year’s law, you could only offset a total of $99,750 between those three years, which is $11,250 less than you offset by bunching in 2025.
How Consilio Wealth Advisors Can Help
Tax planning can be confusing. At Consilio Wealth Advisors, we are laser-focused on after-tax outcomes. If you’re looking to make the most of your charitable giving before the year’s end, feel free to book a call today.
Disclosures
The information provided in this article is for educational and informational purposes only and does not constitute investment advice and should not be relied on as such. It should not be considered a solicitation to buy or an offer to sell a security. It does not take into account any investor's particular investment objectives, strategies, tax status, or investment horizon. You should consult your attorney or tax advisor.
The views expressed in this commentary are subject to change based on market and other conditions. These documents may contain certain statements that may be deemed forward‐looking statements. Please note that any such statements are not guarantees of any future performance and actual results or developments may differ materially from those projected. Any projections, market outlooks, or estimates are based upon certain assumptions and should not be construed as indicative of actual events that will occur.
Consilio Wealth Advisors, LLC ("CWA") is a registered investment advisor. Advisory services are only offered to clients or prospective clients where CWA and its representatives are properly licensed or exempt from licensure.
