Hidden Gem: The $2,000 Charitable Deduction You Didn’t Know About

This week’s insight digs up a small nugget in the One Big, Beautiful Bill Act (OBBBA).

As we continue nerding out on taxes, one OBBBA provision caught our eye, and it might put a few hundred bucks back in your pocket. We’re going to bury the lead a bit by providing some background. The 2017 Tax Cuts and Jobs Act (TCJA) simplified the tax code by eliminating the so-called “personal exemption” and increasing the standard deduction. That change didn’t impact taxpayers, but it stung charities.

You see, by approximately doubling the standard deduction, it raised the bar for those who itemize—a single filer now has to have significant charitable deductions, mortgage loan interest payments, and other qualifying items for it to make sense to itemize. It’s estimated that approximately 90% of taxpayers currently take the standard deduction. As a result, people have less incentive to donate to charity, since often, there is no effective tax break.

That changes a bit with a new provision in the OBBBA. Starting next year, all taxpayers can deduct cash charitable donations (up to $1,000 for individuals and $2,000 for joint filers). It’s cash only—no special deduction for giving stock, property, or putting assets in a donor-advised fund. Still, if you and your spouse are in the 32% marginal tax bracket, and give $2,000, that’s $640 back to you come tax season (assuming you take the standard deduction).

Of course, arguably the best donating strategy is restricted to seniors taking Required Minimum Distributions (RMDs). “Qualified Charitable Distributions” (QCDs) allow those aged 70 ½ or older to avoid owing tax on their RMDs by sending the assets directly to a charity, up to $108,000 per individual per year (2025).

A still-solid giving option more broadly available is to give appreciated stock (not cash) to your favorite qualifying philanthropic organization. Not only can you take a tax deduction if you itemize, but you can also bypass owing capital gains tax. The limit on this break is generally 30% of your Adjusted Gross Income (AGI). So, if your AGI is $300,000, you could gift $90,000 of shares right to the charity and reap the tax savings.

Now is also a great time to consider a “bunching” strategy—consolidating multiple years’ worth of charitable giving into a single tax year. By doing so, you may maximize your tax benefit, especially if your annual donations typically result in itemized deductions that fall shy of or barely exceed the standard deduction threshold.