What the OBBBA Means for Nonprofits

Overall, the One Big Beautiful Bill Act (OBBBA) contains fewer provisions than originally expected based on the original proposals.  In addition to affecting private colleges and universities with large endowments and exempt organizations with highly compensated employees, the tax package introduces key changes to charitable contribution deductions. Let’s delve into the specifics of these revised rules and their potential impact on charitable organizations and their donors.

There is so much room for maximizing charitable donations with changes from the OBBBA, but you’ve got to understand the changes to figure out how it will best impact your organization and your donor base. Let’s break it down into three categories: Non-Itemizers, Itemizers, and Corporations.

Non-Itemizers are individual taxpayers who do not take advantage of itemizing their deductions on their tax returns. These individuals take the “standard deduction” which is $16,000 for single filers and $32,000 for joint filers, with annual inflation adjustments.

Non-itemizers, who make up the majority of America’s taxpayers, typically do not donate to charitable organizations. Starting in 2026, the OBBBA allows them to deduct $1,000 (single filers) or $2,000 (married filers) for charitable donations without itemizing. This new permanent deduction is called the Universal Charitable Deduction. Since this benefit caps at $2,000, it’s crucial to encourage early-year donations rather than year-end pushes. This aims to increase the number of Americans who give, though not necessarily the amount they give. As a result, you may need to shift your focus to average earners who don’t normally give much or at all, as they can now reduce their taxable income by up to $2,000. Surely, they’d rather give to your cause than pay taxes. Since the higher standard deduction was made permanent with the OBBBA, it is expected for fewer taxpayers to itemize their deductions which could reduce the number of donors. To appeal to these donors, charitable organizations will need to focus more on mission alignment rather than tax incentives.

Itemizers are those who do take advantage of itemizing their deductions which include state and local taxes paid, medical deductions, interest deductions, and charitable donations.

Itemizers, who make up about 10% of Americans and generally already donate to your organization, will face a new limitation beginning in 2026. Itemizers who make charitable contributions will only be able to claim a tax deduction to the extent that their qualified contributions exceed 0.5% of their adjusted gross income (AGI). While this impact may seem small, it could reduce some large gifts.

Additionally, a new cap on itemized deductions at 35% will particularly affect high-income individuals in the 37% tax bracket. For example, if they donate $10,000, the value of the deduction will be limited to $3,500, compared to $3,700 before 2026.

Encourage donors to maximize their giving in 2025 before these changes take effect.

Despite rumors, the OBBBA has made the 60% limit on cash contributions permanent, so it is not going away. This continues to be a great incentive to give.

Corporations will face a new rule starting in 2026 requiring charitable donations to exceed 1% of their AGI to qualify for deductions. Donations below this threshold won’t be deductible, potentially discouraging contributions. However, corporations can use a bunching strategy by making larger donations to cover several years which would benefit both the charity and their tax deductions.

To recap some of the planning strategies above:

Strategies to implement now in 2025:

• Encourage high income donors to give more in 2025 before the 0.5% AGI floor and 35% cap kick into effect in 2026.
• Encourage corporate donors to give more in 2025 before the 1% floor starts in 2026.

Strategies for 2026 and beyond:

• In addition to traditional marketing efforts, begin targeting the individuals who don’t normally give since they will be able to deduct up to $1,000 for single or $2,000 for married filers in addition to their standard deductions. Start these efforts early in the year before they have already maxed out on the deduction by giving to other charities.
• Continue educating donors about Qualified Charitable Distributions (QCDs) from their retirement accounts, which are now even more advantageous given the new limitations on charitable deduction itemization. Since QCDs are transferred directly from the retirement plan to the charity and excluded from taxable income, they offer a more favorable tax benefit than itemized deductions.
• Make arrangements with corporate donors to give larger donations in one year so they can still get a deduction, but you will need to budget accordingly knowing you would not get a repeat large contribution in the subsequent year.
• Create opportunities for businesses to deduct payments to the organization as an ordinary and necessary business expenses that are not subject to limitations.   This would require that the donor receives something of value in return for their donation.

We will continue to monitor the new law as the Internal Revenue Service publishes guidance.  Our full overview of the OBBBA can be found here – The One Big Beautiful Bill Recap . If you have any questions or thoughts, please do not hesitate to reach out to your Wilkins Miller advisor, and we can discuss how these changes may impact you and your specific situation.