Journal of Financial Planning: December 2025
NOTE: Please be aware that the audio version, created with Amazon Polly, may contain mispronunciations.
Jared Winkers, CFP®, ChFC, CAP, is associate director of planning at MJWM (www.mcgilljunge.com), a $2 billion AUM wealth management firm in Clive, IA. He graduated from the University of Northern Iowa in 2021 at the age of 19 and later that year became the youngest person ever to pass the CFP® exam. In his first year as a CFP® professional, Jared’s work was published on Kitces.com. His passion is pushing limits of optimization, then simplifying findings to improve as many client plans as possible.
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The remaining weeks of 2025 present a unique charitable planning opportunity: The One Big Beautiful Bill Act (which does not contain the words “the One Big Beautiful Bill Act” or “OBBBA”—having no short title, the official name of the law is “P.L. 119121”) includes many changes to charitable giving that do not come into effect until 2026. The most impactful of these changes include:
- 0.5 percent of adjusted gross income (AGI) floor on itemized charitable deductions. This limitation is similar to the current 7.5 percent AGI floor on healthcare expenses. The potential itemized deduction for charitable contributions will be reduced by 0.5 percent of AGI. Special consideration may apply for charitable contribution carryovers.
- “2/37” (~5.4 percent) reduction in the value of itemized deductions when taken by those in the top 37 percent federal tax bracket. When a taxpayer in the 37 percent federal tax bracket itemizes deductions, they will now be forced to reduce the amount of the itemized deduction by 2/37, or approximately 5.4 percent. Essentially, deductions in the 37 percent bracket are now worth 35 percent instead of 37 percent. This is only up to the limit of itemized deductions or income in the 37 percent bracket, so an individual who is $1 over the 37 percent threshold would only lose the additional deduction on that $1 in the 37 percent bracket (itemized deductions offsetting income in the 35 percent or lower tax brackets are unaffected).
- A new $2,000 “above-the-line” deduction for standard deduction users making cash gifts. The OBBBA introduced a new adjustment to income for standard deduction users, similar to the $300/$600 provisions of the 2021 extension of the Coronavirus Aid, Relief, and Economic Security (CARES) Act. This change allows those who do not have enough deductions to itemize to still gain some tax relief from their charitable giving.
For those advisers with charitably minded clients, discussions on sizing a “bunched” charitable gift in 2025 can be guided by the “charitable giving efficient frontier” (balancing liquidity tradeoffs of a large lump-sum “bunching” gift against the risk of losing out on more favorable 2025 tax benefits for charitable deductions).
This three-tier framework provides clear guidance on how to maximize the value of charitable giving, based on which group your particular client falls into: standard deduction users (or those gifting less than $2,000 per year) who must bunch to exceed the new $31,500 (MFJ) standard deduction threshold (increased in OBBBA), those who are gifting significant amounts relative to their AGI and are limited on current deductibility, or a maximized bunching gift combining 30 percent appreciated securities with 20 percent cash to prefund philanthropy (donor-advised fund or direct charitable gift) that takes advantage of 2025 tax laws to make a large, tax-advantaged gift that is still allowed to be fully deducted at the 37 percent bracket with no 0.5 percent AGI reduction applied.
Three Tax Changes That Make 2025 an Attractive Year for Charitable Bunching
0.5 Percent AGI Floor on Itemized Charitable Deductions
Donations made after December 31, 2025, will have their itemized deduction value, in the current year, reduced by an amount equal to 0.5 percent of AGI.
Example 1. Married couple with $100,000 AGI gifts $1,000 to charity. The first $500 (or 0.5 percent of $100,000) would not be counted as an itemized deduction.
Despite this reduction in gift value, the bill provides a small relief in the case of a charitable gift that is too large to deduct and therefore creates a charitable deduction “carryforward.” Clients are able to add back the amount of the gift that was disallowed in the current year as a deduction to their carryforward.
Example 2. Married couple with $100,000 AGI in 2026 gifts $50,000 of appreciated stock to donor-advised fund. Their total potential itemized deduction is $49,500 ($500 = 0.5 percent AGI), but the current year deduction would be $30,000, and their charitable deduction carryforward would be $20,000 ($19,500 of unused deduction + the added back 0.5 percent due to the presence of a carryforward).
Gifts deducted in 2025 are not subject to the 0.5 percent AGI floor. However, if a 2025 charitable deduction is carried forward to 2026 or later, the text of the law states that the 0.5 percent AGI limitation applies to that carryforward, the same as future current year contributions.
It is important to strongly consider the growth (or reduction) of AGI in future years for any client who is making a gift too large to fully deduct in the current year, as this carryforward rule may penalize those who are using Roth conversions or other income-creation strategies to increase AGI, which allows a larger deduction but at the cost of a larger 0.5 percent AGI limitation (as AGI increases, so does the 0.5 percent floor). Alternatively, a charitable deduction may be worth less in a subsequent year due to offsetting income in a lower tax bracket, or the carryover amount may be insufficient to itemize deductions.
Overall, the client’s net gift to charity will be reduced by some amount, with that reduced value varying based on the AGI of the year they ultimately deduct the balance of the gift.
“2/37” (or 5.4 Percent) Reduction in the Amount of Allowed Itemized Deductions in the Top (37 Percent) Bracket
The OBBBA repealed the “Pease limitation” (by changing Section 68 of the IRC), which previously limited the amount of itemized deductions based on income thresholds and has been suspended since the passage of the 2017 Tax Cuts and Jobs Act (TCJA). In its place is a new limitation on the total amount of itemized deductions, but the limitation applies to relatively higher income taxpayers. The Pease limitation was scheduled to return with TCJA sunset, so this new limitation is better for taxpayers than what may otherwise have occurred.
Starting in 2026, itemized deductions claimed by taxpayers in the 37 percent bracket will be effectively deducted at a rate of 35 percent per dollar of itemized deduction. This is achieved by reducing the deductible amount of itemized deductions by 2/37 of AGI, which works out to an effective reduction of deduction value by 2 percent (see example 3).
Because this only applies to itemized deductions offsetting income in the 37 percent bracket, a taxpayer whose income is $1 over the 37 percent bracket threshold would only lose the additional deduction on that $1 in the 37 percent bracket (35 percent bracket deductions and below are unaffected). This change is not in effect until the 2026 tax year, meaning a gift made on January 1, 2026, could be worth less than the same gift made one day prior on December 31, 2025.
Example 3. Married couple with $1 million AGI gifts $100,000 to charity in 2026. This gift would provide a deduction of only $94,594 [$100,000 − 5.4 percent (or 2/37)]. The amount of the itemized deduction is reduced; however, they would still claim the $94,594 deduction against their 37 percent marginal bracket for a total tax reduction of approximately $35,000 [$94,594 × 0.37 = $34,999.78, which is equivalent to $100,000 × 35 percent].
If the gift in example 3 was made before January 1, 2026, it would have provided an additional $2,000 of deduction ($37,000 versus $35,000).
Both the 0.5 percent AGI floor and the 5.4 percent reduction in the amount of itemized deductions do not begin until 2026, meaning that bunching of itemized deductions for taxpayers in the 37 percent bracket for 2025 is the final chance to deduct the full value of gifts for those in the top tax bracket while also avoiding the new AGI floor.
Note also that more taxpayers are likely to be itemizing in 2026 due to another OBBBA change—the increase of the maximum SALT itemized deduction from $10,000 to $40,000. Although this additional $30,000 itemized deduction is subject to phase-out based on income, this will broadly allow more taxpayers to claim itemized deductions, independent of charitable planning.
$2,000 Charitable Cash “Handouts” ($2,000 MFJ / $1,000 Single)
Standard deduction users can claim up to $2,000 (MFJ) in “above-the-line” deductions (adjustments) for cash gifts made in 2026 or later. Note that this is specifically for cash gifts—gifts of appreciated securities would not qualify for the new adjustment. Fewer than 10 percent of taxpayers with AGI less than $100,000 itemized their tax returns in 2022 (Tax Policy Center 2025), making this change one of the most applicable changes for those in lower tax brackets.
2025 Is Ideal for Bunching Charitable Contributions
While the 0.5 percent of AGI floor will apply to charitable gifts deducted in 2026, gifts deducted in 2025 will avoid this floor when calculating the current year charitable deduction. This allows for strategic philanthropic giving strategies—where appreciated shares gifts and all other itemized deductions (e.g., prefunded property tax or fourth-quarter state estimated income tax payments) should be bunched together to maximize itemized deductions and avoidance of gain recognition in the years that the itemized deduction is taken. In subsequent years where a bunched itemized deduction is not used, the standard deduction (plus potential above-the-line cash gifts) is utilized. The client must reevaluate annually between taking the standard deduction and itemizing based on current year conditions (returns, AGI, gift size goals, health status, etc). Should a carryforward exist in a year where the taxpayer takes the standard deduction, they permanently lose the amount of carryforward they could have used (Cornell Law School 2016), making it extremely attractive to only take itemized deductions (particularly charitable gifts of securities) when they can be fully utilized within the current year.
In non-bunching years, and assuming the desired gift is small enough or appreciated shares are unavailable, the standard deduction should be taken and potentially combined with the new above-the-line deduction (or adjustment) of $2,000 (MFJ) charitable gifts made in cash. This new $2,000 adjustment is only eligible for standard deduction users and not subject to the 0.5 percent AGI floor, making it an attractive opportunity for non-bunching years.
Three Levels of the 2025 Charitable Giving Efficiency Frontier
While charitable giving will always be individualized, the following hypothetical clients illustrate examples of how OBBBA affects a wide range of incomes—however all gifting is unique and no one strategy is applicable to all.
Tier 1: Standard Deduction Users
Client profile. Clients who give less than $2,000 ($1,000 for single) per year or normally claim the standard deduction of $31,500 (MFJ) due to itemized deductions falling below that threshold. The Tax Policy Center (2008) estimates around 91 percent of taxpayers claim the standard deduction, so most individuals are included in this class.
Strategy. The largest decision point for these clients is: Do they need to itemize to gain tax benefits from their charitable giving? If their planned gift is smaller than $2,000, waiting until January 1, 2026, and making that gift in cash would give them $2,000 of tax deductions that would be entirely forfeit if the gift were to be made in 2025. If their desired gift is larger than $2,000 (and cannot be easily split into 2026/2027), then the decision becomes: Can the client give enough, in 2025, to reach the itemization threshold? For example, if you have $20,000 of deductions and then donate $11,501 to charity (MFJ), you would still only get an effective “benefit” of $1 in additional deduction for your $11,501 gift with no carry forward. If such a client plans to give a similar amount to charity in future years, they should consider bunching several years of contributions in 2025. If the bunched gift is made via a donor-advised fund, they may still disburse to public charities on their desired schedule.
Calculation. Itemization Threshold Gift = (2025 Standard Deduction) − (Projected 2025 Other Itemized Deductions) − $2,000 MFJ (or $1,000 Single).
Calculation explained. For a client to be better off itemizing, they must give enough to both get themselves over the standard deduction threshold AND give an additional $2,000; if they gave less than $2,000 more than the threshold, they would have been better off waiting for 2026 and taking the adjustment.
Tier 2: AGI-Constraints by Either 30 Percent (Appreciated Securities), 50 percent (Combination), or 60 Percent (Cash)
Client profile. The majority of affluent clients who are already giving to charity regularly in amounts above $2,000 may already be itemizing (e.g., many of those in the $100,000+ income range giving ~10 percent tithing or tzedakah, $10,000–$30,000 per year in annual gifting).
Strategy. Bunching long-term appreciated securities into a DAF up to the maximum amount that can be deducted, which for 2025 would be equal to 30 percent of AGI. Giving up to the AGI limit avoids the risk that a carryforward deduction is limited or lost in a subsequent year. AGI can be raised through Roth conversions if necessary, however the net present value of those conversions must then be integrated into the comprehensive analysis (McQuarrie 2024).
Calculation explanation. Gift = 30 percent of 2025 AGI, using appreciated securities (substitute percentage if using blended or cash gifts, 50 percent and 60 percent respectively). This would be one of the most compelling gift sizes in 2025, as this amount maximizes the 2025 deduction while minimizing the risk of unused carryforward, exposure of carryforward to the 0.5 percent AGI floor, and allows a gift of securities to avoid capital gains vs. a cash gift providing no gain avoidance.
Tier 3: Strategically Funded Philanthropy
Client profile. UHNW or high-income clients who are confident they will itemize deductions, identified surplus capital, and have long-term gain assets with varying levels of long-term capital gains.
Strategy. Size an initial lump sum of appreciated securities (if available) into a DAF (or direct charity) equal to the maximum expected itemized deduction that can be claimed in the current year, specifically 2025 (IRS 2024). This maximizes the ability to avoid the 0.5 percent floor and 2/37 reduction in 2025, before 2026 changes. Then, starting in 2026, review your philanthropic goals: when a DAF needs refilling or a charity has a capital campaign, that is an ideal year to bunch again (assuming appreciated securities). In non-itemization years, making $2,000 cash gifts provides a deduction at the 37 percent bracket without the 0.5 percent floor reducing the deduction.
Depending on factors such as total long-term capital gain property available to gift, total gift size goal, current and future AGI, possibility of non-qualified asset step up, expected future tax brackets, and more—it may make more sense to do larger bunching donations of securities and entirely forgo “handouts,” particularly for younger individuals with larger appreciated security positions.
Calculation explanation. Due to the extremely individualized considerations listed above for those in this tier of charitable giving, a calculation is forgone in favor of guidelines for weighing handouts versus bunching.
Appreciated security gift deductions are constrained by AGI limitations, meaning it could make sense to give not only 30 percent of AGI worth of securities in 2025—but also an additional 20 percent of cash. This is due to any gifts deducted in 2025 retaining the 37 percent bracket deduction and avoiding the 0.5 percent AGI floor. If 30 percent of AGI is below the level needed for client philanthropic goals, cash gifts still provide utility in 2025 above the expected tax deductions they may provide in future years or that appreciated securities (if gain is low enough) may provide in those future years.
AGI variance is another factor to consider in making 50 percent (30 percent securities / 20 percent cash) gifts in 2025 to ensure deductibility at the 37 percent bracket. Should AGI increase significantly after 2025, the 0.5 percent AGI floor will eat away at carryforward values. Additionally, carried forward gifts would be subject to the 2/37 limitation on deductions. Once a gift is made, the carryforward is irrevocable—you cannot take a gift back and then regift it in the next calendar year, meaning a gift fully deducted in the current year is more attractive than those carried forward.
Client Example: The High Cost of Waiting
Consider the “Petersons,” a high-earning professional couple (MFJ) with $1.5 million of AGI in 2025 (putting them in the 37 percent tax bracket). They give $100,000 to charity annually and have $15,000 of existing itemized deductions (SALT +
interest). It is assumed that all charitable contributions are within the applicable AGI limitations, such that no carryover is created. Under the circumstances, this means that charitable contributions would need to come at least partially from cash. The example assumes static tax rates, tax brackets, and standard deduction amount (no indexing for inflation and no changes in tax law).
Strategy 1: Continue Annual Gifting of $100,000 (“Base Case”)
• Total charitable gift from 2025–2029: $500,000 ($100,000 per year)
• Total potential itemized deductions before limitations: $575,000
° 2025: $115,000 ($100,000 gift + $15,000 other itemized deductions)
° 2026: $101,689 ($115,000 potential itemized deduction, limited as follows):
0.5 percent limitation ($1,500,000 × 0.5 percent = $7,500) reduces charitable deduction to $92,500.
2/37 limitation ($92,500 charity + $15,000 = $107,500 total itemized deductions × (1 – 2/37)) = $101,689
° 2027: $101,689 (Same as 2026)
° 2028: $101,689 (Same as 2026)
° 2029: $101,689 (Same as 2026)
° Cumulative itemized deductions of $521,756, multiplied by the 37 percent marginal tax rate, produces cumulative tax savings of $193,050.
Strategy 2: Bunch in 2025 (Avoiding 2/37 + 0.5 Percent AGI Floor), Take Standard Deduction Plus $2,000 Adjustment from 2026 On
• Total charitable gift from 2025–2029: $500,000 ($492,000 in 2025, $2,000 per year in 2026–2029)
• Total potential itemized deductions before limitations: $575,000
° 2025: $507,000 deduction (bunched gift of $492,000 + $15,000 other itemized deductions)
° 2026: $33,500 (Standard deduction + $2,000 cash gift made)
° 2027: $33,500 (same as 2026)
° 2028: $33,500 (same as 2026)
° 2029: $33,500 (same as 2026)
• Cumulative deductions, inclusive of itemized deductions, standard deductions, and above-the-line charitable deductions of $641,000 multiplied by the 37 percent marginal tax rate, produces cumulative tax savings of $237,170
° There are no 0.5 percent or 2/37 limitations on itemized deductions, although the $15,000 of non-charitable itemized deductions are of no benefit in 2026–2029 since the standard deduction is claimed in those years
° Note that the actual cumulative standard deductions will be higher than modeled because the standard deduction is indexed for inflation, so it increases each year
The bottom line for the Petersons. By planning ahead and bunching in 2025, to make gifts over the next few years, the Petersons manage to save an additional $44,120 in taxes (~23 percent more tax benefit for the exact same $100,000 annual gift, assuming use of a donor-advised fund).
This increase in tax savings is specifically attributable to the following tax benefits:
• Avoiding 0.5 percent limitation on the charitable gifts: $2,775
• Avoiding 2/37 limitation on the charitable
gifts: $8,000
• Bunching (incremental standard deduction): $33,345
Key Execution Steps and Advanced Strategies
Asset Selection Hierarchy: Appreciated Shares Beat Cash
An ideal asset for gifting in 2025 would be appreciated securities held for at least 366 days (IRS 2019); this is easiest when done with marketable securities that would not require a valuation. When gifting appreciated securities to a DAF or directly to 501(c)3 charities, you are able to permanently avoid recognition of any gains (e.g., if you donated $100,000 of stock with basis of $1,000, you would avoid $99,000 of capital gain income).
In 2025, due to these rule changes, even cash gifts may make sense. If your client has a large, time-sensitive charitable goal (e.g., donating to a capital campaign at their church) then gifting only appreciated securities may limit their ability to deduct the entire contribution in 2025. If cash gifts are combined with an appreciated securities gift, then the AGI limit may be increased up to 50 percent. The donation needs to be entirely cash to get up to the 60 percent limitation.
Strategic Philanthropy: Maximizing 2025 Opportunity for Gifting Appreciated Securities, Reanalyze Annually
This is the strategy employed by the Petersons: A bunched gift of securities (or cash) made in year one to prefund a majority of the next four years (including year one). This is “supercharged” bunching in 2025 due to the OBBBA changes coming into effect January 1, 2026—allowing the first bunching to be the most impactful.
Donor-advised funds provide both flexibility (gifts made to a DAF can be held there potentially for generations) and investment options, meaning a 2025 bunched gift could be invested and grown to be used for even more giving. If a new philanthropic opportunity arises a year after the bunched gift, the client can choose to grant the entire DAF balance.
The $2,000 MFJ ($1,000 single) adjustment for cash gifts to charity is only available when taking the standard deduction, so if your clients are itemizing with only ~$32,000–$34,000 total itemized deductions, it is possible they are better off making a cash gift and taking the standard deduction. As noted above, the new cash gift adjustments are not subject to the 2/37 limitation on itemized deductions and the 0.5 percent AGI floor—meaning they could even potentially be more attractive than making appreciated security gifts based on AGI, basis, and other client-specific details.
While anyone who does not always itemize may benefit in this multi-year bunching cadence (barring any lost carryforward due to the “lost deduction” of any itemized deductions taken during a standard deduction year or any AGI variance causing a punitively high 0.5 percent AGI floor), due to cash flow constraints, it may be more manageable to fund a DAF one or two years at a time until more assets are available.
Conformity and State Tax Impacts
Many states “conform” (American Institute of CPAs 2024) to federal tax law, meaning they may copy some or many of these code changes into their own state-level tax code. With rates ranging from 0–13.3 percent, consulting with clients’ CPAs on exactly how their state taxes will be affected by giving or bunching in 2025 is imperative. For many states, their taxation will make the 2025 bunching strategy even more compelling.
Conclusion
Charitable giving will produce less tax benefit per dollar donated for itemizers starting in 2026, creating a clear incentive for charitably inclined clients and advisers to review strategic gifting options while they are still able to get full value (avoiding the 0.5 percent AGI floor) and deduct at the top tax bracket of 37 percent (for those individuals in the top tax bracket).
By determining where your client is along the charitable giving efficient frontier, you can determine the optimal 2025 gift, which may end up being no gift at all in 2025 for the majority of Americans who will be giving less than $2,000 to charity and taking the standard deduction. For more affluent clients, 2025 is a tremendous opportunity for bunching of appreciated securities into a DAF for a potentially multi-generational charitable giving fund. Despite the myriad tax advantages of charitable giving in 2025, you will never profit from charitable giving, so the most important question will be: Are your gifts making the impact in the world you want to see, and, if not, how can they?
References
American Institute of CPAs. 2024, June. “Understanding State Tax Conformity.” The Tax Adviser. www.thetaxadviser.com/issues/2024/jun/understanding-state-tax-conformity/.
Cornell Law School. 2016. “26 CFR § 1.170A-10 - Charitable Contributions Carryovers of Individuals.” Legal Information Institute. Accessed October 16, 2025. www.law.cornell.edu/cfr/text/26/1.170A-10.
IRS (Internal Revenue Service). 2019. “Topic No. 409, Capital Gains and Losses.” Accessed October 16, 2025. www.irs.gov/taxtopics/tc409.
IRS (Internal Revenue Service). 2024. “Publication 526: Charitable Contributions.” Washington, DC: Department of the Treasury. www.irs.gov/pub/irs-pdf/p526.pdf.
McQuarrie, Edward F. 2024. “Net Present Value Analysis of Roth Conversions.” Journal of Financial Planning 37 (9): 76–85. www.financialplanningassociation.org/learning/publications/journal/SEP24-net-present-value-analysis-roth-conversions.
Tax Policy Center. 2008. “What Is the Standard Deduction?” Tax Policy Center Briefing Book. Urban Institute and Brookings Institution. Accessed October 16, 2025. https://taxpolicycenter.org/briefing-book/what-standard-deduction.
Tax Policy Center. 2025. “What Are Itemized Deductions and Who Claims Them?” Tax Policy Center Briefing Book. Urban Institute and Brookings Institution. Accessed November 5, 2025. https://taxpolicycenter.org/briefing-book/what-are-itemized-deductions-and-who-claims-them.