Charitable giving is near and dear to my heart. As a financial advisor in Lexington, Kentucky, I've found that when families implement creative giving strategies, they can actually better their financial picture by increasing their giving. The One Big Beautiful Bill Act created two changes to charitable deductions this year, and whether you itemize or take the standard deduction, at least one of them applies to you.

This is week eight of our OBBBA series on The Groundwork.

WHAT YOU'LL LEARN

New Above-the-Line Deduction for Non-Itemizers

•      For the first time in years, people who take the standard deduction can receive a tax benefit for charitable giving

•      A permanent above-the-line deduction of up to $1,000 for single filers and $2,000 for married filing jointly, even if you don't itemize

•      This deduction is not subject to the new 0.5% AGI floor that applies to itemized deductions

•      One important limitation: the gift must go directly to a qualifying charitable organization. Contributions to Donor Advised Funds do not qualify for this deduction.

New 0.5% AGI Floor on Itemized Charitable Deductions

•      If you itemize, itemized charitable deductions are now subject to a 0.5% of AGI floor

•      The first 0.5% of your adjusted gross income in charitable giving is not deductible. Example: $200,000 AGI means the first $1,000 of giving is disallowed.

•      Carryovers from prior years are also subject to the 0.5% floor in the year they are used

•      The floor applies to all itemized charitable deductions, including gifts to Donor Advised Funds

•      DAFs now carry a slight structural disadvantage: they don't qualify for the new above-the-line deduction and still face the same floor as direct gifts

How Roth Conversions, QCDs, and the New Rules Interact

•      A Roth conversion increases your AGI in the year it occurs, which raises your 0.5% floor. In a year with a large Roth conversion and a significant charitable gift, part of your giving that would have been deductible is now not. These two strategies interact.

•      A QCD (Qualified Charitable Distribution) goes directly from your IRA to the charity and never enters your income. This lowers your AGI, lowers your floor, and creates more room for a Roth conversion in the same year. QCDs and Roth conversions, used together intentionally, can complement each other.

Three Ways to Give and How the New Rules Treat Each

•      Cash: non-itemizers get the new $1,000/$2,000 deduction; itemizers can still deduct giving above the 0.5% floor

•      QCD: available at age 70.5 or older; up to $108,000/year; never hits your income so no floor applies; the most powerful tool for charitably inclined retirees right now

•      Appreciated assets: give directly to a charity or DAF to avoid capital gains on the growth; deduct at fair market value; deduction is subject to the 0.5% floor if you itemize, but the capital gains benefit is unchanged

Want to think through the most tax-efficient way to give given your situation?

Whether you're a family in Lexington thinking about how charitable giving fits into your financial plan, a retiree considering QCDs, or a donor who gives through a Donor Advised Fund, the new rules are worth a fresh look. I'd be glad and honored to sit down with you.