New Charity Deduction and How to Take Advantage

Today, we'll be discussing the new charity deduction for 2026 and how to take advantage of it. Hello and welcome to Money Talks. My name is Ken Wink from Summit Financial Consulting. If you'd like more info about what you hear during the show today, give us a call at 586-226-2100 or visit us online at summitfc.net. While you're at the website, please check out the podcast page. You can look at our old shows, listen to our old shows. You can subscribe on Apple Podcasts, Spotify, or Amazon Music. So the big beautiful bill of 2025 was 870 pages long. That is a lot to read. So there's some pretty significant changes to donations to charities and how those are handled. And there's a potential nice benefit for your average taxpayer. So today we'll be discussing the new charity deduction that'll arrive in 2026, but also some drawbacks that are sort of hidden in there for high income earners who donate a lot to charity. So before we jump into this topic, let me introduce my co-host, Tony Shore. Tony, now I've heard that you have such a green thumb talking of charity and donations. You donate your time on weekends to sing to plants and speak to plants to try and save them just to keep your radio voice strong over the weekend to comfort. And have you heard that before that plants like get happy when people talk to them or sing to them?

And I have heard that not so much to plants, but I have been told I have a very soothing voice. You know who loves my voice? Animals seem to really like if I talk to our cats like. Hey, kitty, kitty, come on now. Milo, kitty. They'll come and they'll start purring. And so my dog, same with the dogs. So, but yeah, anything I can do to use my voice, I'm happy to help the plants. You know that. But no, it's funny you say green thumb because my wife and I, there's one thing we're really good at is killing plants. Unfortunately, yeah, we can't. Yeah, we can. You've got plants all over there behind you. I know you're a you're a plant guy. You love plants and you're good with plants, I guess. But not me. I'm not that handy with the gardening. And I grew up on a farm. And boy, my grandparents had gardens. My parents. Yeah. What happened? I'm not a big fan of gardening, but my wife and I've been trying to we've been making a little more effort. trying to put in more effort with the plants. It's hard to have houseplants when you have four cats and a dog though. Sometimes that doesn't, they, they knock them over or try to eat the leaves. So it hasn't worked out. How about you? Are you a plant guy, a green thumb guy?

One more question. So the, I understand that you have a very successful career as a DJ. So is your DJ name Dr. Doolittle?

My radio name from when I started was Dr. Tony Shore because I wanted to be like Dr. Johnny Fever on WKRP, which was an old TV show, or Dr. Demento, who's also from Minnesota, where I'm from. His real name was Barry Hanson. But I always say I'm Dr. Tony Shore. I'm not a real doctor, but I play one on the radio. But Dr. Doolittle, that's funny. Yeah, Dr. Doolittle was good with the animals as well. No, I've always grown up. I love animals. Grew up on a farm with so many different types of animals. And we had llamas, goats for a while, cattle, hogs, horses, chickens, you name it. We had it out there. So, yeah, I do like animals. I'm pretty good with animals. So that's good. Plants, not so much. I don't know why. Yeah.

I'm not great. I've got a great team around me that helps keep those plants alive behind you there. People see them and they're like, Oh, this guy can't even keep a plant alive. How can he run my portfolio?

Well, yeah, that's not, that wouldn't be good. No, that would not be good. So I wasn't aware. I'll be honest. I've heard a lot about the big, beautiful bill and either I forgot because there's been so much and there's so much in there. I didn't know that there was a new charity deduction or a change to deducting, you know, how giving for charities if you can deduct. But it has something to do with the standard deduction versus itemizing, right?

Yeah, I would say this is a Robin Hood type thing. new deduction. So they're sort of taking from the rich and not giving to the poor, but just giving to your average person who donates to a charity. So when the standard deduction was raised in 2018 from the tax cuts and jobs act, uh, Most people were not in a position to deduct their charitable contributions anymore. Most people don't have enough discretionary funds to be able to don't, you know, for a married couple, you'd have to between your mortgage interest, property taxes and charitable donations. It has to be over $30,000 these days, you know, in 2025. So here's the big, big reveal. In 2026, you do not need to itemize. So basically meaning you take the standard deduction, which is what most people do. So for 2026 and beyond, if you're single, you can donate up to $1,000. Those have to be cash donations. They can't be you know, blankets from your attic, but actual cash donations to charity, a single person can donate up to a thousand dollars and a married couple filing jointly can donate up to $2,000 and write it right off the top line of their taxes. So this is a,

So it works like an addition to your standard deduction. So you don't have to itemize to get it, which is the problem with all deductions is they basically went away when the standard deduction went up so much, nobody itemizes anymore their taxes. Very few. I mean, it makes more sense for most people to just take the standard deduction. However, then you lose all those. You're also losing any benefit. Like, let's say you do want to give $2,000 to a charity or you're going to tithe to your church. Now, take that off the top of the standard. It adds on to your standard deduction. You don't have to itemize to get it is what you're saying.

Yes. Yeah, that is huge. Yeah, it is huge. There's so many people that do their taxes and they they give a little bit to this charity and that charity and they didn't realize it, but they really weren't getting a dollar back on their taxes because of that. Now, a lot of people are. I mean, this is going to. I would predict millions and millions of people are now going to be able to write off contributions to charity. And I think this is great for charities, too, because word got around that you couldn't write this stuff off. So now they've they've got a rallying cry of, hey, you know, make a contribution to charity. And now you get to write it off again, even if you're taking the standard deduction. So that's that's the biggest change. And it's it's really huge.

Well, that's a good point. I never thought of that from a charity standpoint. They probably really took a hit. When they raised that standard deduction and people stopped itemizing because then people might have stopped donating as much because they didn't really get a break on their taxes by doing it. But now at least there's something.

Yeah. Yeah. So a couple other changes. So that's the that's the first thing is that, OK, now we've added this new benefit to people. So who's going to pay for this? Right. So the change is that for people that were higher income or people that were donating a lot to charity, they're taking a little bit of a hit here. So what the new legislation says is that if you itemize and if you're making charitable deductions, the first 0.5% of your income that you donate to charity is no longer tax deductible. So they're actually taking away deductions from high earners and people that donate a lot to charity. Okay, that's interesting. Yeah, I'll go through some examples. Yeah, give me an example of that. Yeah, so let's just say that you're a dual income household and you make $200,000 and you gave $2,000 to charity. Only $1,000 of that would actually be written off on your taxes. The first 0.5%, which in this example is $1,000, would not be deductible.

Ah, okay, okay. So if you're in the cap at a certain level, so it's basically if you make $200,000, where's that cap at $200,000? It's just as long as you itemize, then you're sort of now getting penalized the first half a percent of your income.

If you itemize. If you itemize. Yeah. For people that don't itemize, new great benefit. For people that do itemize, they're taken a little bit away from you.

And typically the people who would still itemize at this point are wealthier people who have more money coming in, right?

Yes. Yeah, and there's one other way that they're sort of clipping high earners. So if you are in the absolute top tax bracket, they're actually putting a cap on how much percentage-wise of your income can now be written off. So if you're in the 38% tax bracket, which is for a married couple over $750,000 of income, doesn't matter how much you give at that point, you only get to write it off at 35%. So rather than getting 38% or more written off of your taxes, they put a, so you're still getting a write-off, but you're not getting the full reduction in your income. You're still paying an extra, we'll call it at least 3% in tax if you're up into that stratosphere of donating. Yeah.

Yeah. That's interesting. That's interesting. I'm surprised that that's in here. I did not know. I'll be honest. I didn't know that. I wasn't aware of that aspect of it, especially that 35 percent cap for high income donors. So what else about this do we need to know about here?

If you made a really large donation to charity, there is a cap of how much of your income can be eliminated. So let's just say you donated recently around us. Somebody donated a family farm to the school district. Oh, I know. I knew I'd get you up in arms with that farmer talk. There was a lot of people. Husband and wife, they were both farmers on weekends, but they were both school teachers. So the family decided to donate the family farm to the local school district. Wow. That's a really nice donation. All that land. Yeah. Yeah.

Yeah. So land or the money, the land's worth because farmlands pretty valuable.

Yeah, absolutely.

No, it's a, Like my grandpa said, you know why farmland is so valuable? I said, why? And he goes, because they'll never make more of it. That's true. They can't make more farmland. Yeah. If you have good farmland, it's a finite resource, good farmland.

No doubt. Yeah. So they put a cap on how much of your income can be eliminated when you make a large donation to charity. So that is up to 60% of your income. So, you know, if you make a hundred grand and you donate a half a million dollar farm, we got a problem here. You can't write all of that off. They still make you pay some income taxes. So there is a... a rule that's called carry forward. So if you donate so much that it exceeds that 60% limit, the IRS now says you can carry forward the charity deduction up to five years to use in the future.

Yeah, I have heard about that, the carry forward. I did read about that. That's interesting. So these changes are interesting, but what do we need to watch out for?

Yeah, so I guess it just it really makes sense to look at at the beginning of the year what you plan to do in the upcoming year so that you can make decisions that will benefit you to the best of your ability. So rather than like a very common strategy for our clients is to bunch deductions. So you might say, you know what, this year I'm just going to donate $2,000, but next year so that in 2026 you can take advantage of this new rule. But then in 2027, I'm going to donate quite a bit more and try to take full advantage of it and do a larger donation. So for smaller givers, you don't have to bunch anymore. For larger givers, you may want to bunch just because of this new 0.5% sort of cut to charitable contributions. So yeah, just to sort of like give some examples of how this affects different people. So in 2025, I'll call this the old rule versus the new rules. So with the old rule, if you were making $60,000 and you donated $500 to charity, with the old rules, you get no benefit at all. With the new rules, now you're writing off that $500 and you're going to end up paying less than income taxes. Nice. Another example is let's say that somebody makes eighty thousand dollars and they're married with the old rules. No deduction with the new rules. Now you're writing off that full fifteen hundred dollars. So that's good. But a scenario that hurts you, let's say that you make one hundred and twenty thousand dollars and you donate two thousand dollars and you're single. With the old rule, if you were itemizing, you would have been able to write off the full $2,000. But with the new rule, because of the half a percent sort of penalty for itemizing, you will only be able to write off $1,400. So that's like a $600 loss. So, again, what we would look at when we sit down with you to help plan for this is how much do you plan to donate over the next few years? Do you itemize or do you take the standard deduction? And are you single or are you married? And after we have all that information, we can come up with a strategy to help maximize your deductions when it comes to your actual tax return.

Hmm. So it's interesting. It sounds like to summarize these changes from the one big, beautiful bill act. It sounds like the ones that really are going to benefit are those that do not itemize and use the standard deduction. And the, the, who loses are maybe some of the higher income, like you said, like the, $200,000 and over or $500,000 and over, the higher income you are, the less beneficial these new rules will be.

That's correct. Yeah. For large donations, you're still going to get a hefty tax deduction. Sure. They're just they're just clipping it a little bit to sort of make up, you know, just basically to get some of this money back that they're giving to what I would say is more likely the lower and middle income donors that are donating large sums. So, like I said, it's sort of a Robin Hood tax bill that we've got here, Tony. Not a not a bad thing for your average tax filer.

Yeah, that's good. Anything that helps the middle class and the average tax filers, I think at this point is good since they seem to usually bear the brunt of the burden tax-wise in this country. So we'll see how this all plays out. It is interesting, some of these changes. And I think for our listeners and viewers, if they want to make sure they're taking advantage of them, and I know you work alongside tax professionals and have a team there, Ken, How can our listeners get a hold of you if they have questions or want to get a plan in place or get a second opinion on where they're at?

Yeah, we have access to CPAs that will help us figure out exactly what you should do to maximize this. Our friends at Summit Tax Services, backed by Heemer Klein and Company, they've been in business for 50 years. And I've got a phone right here on my desk to our head tax manager. Yeah.

You've got the hotline on your desk. You're like Commissioner Gordon. The bat phone is right here, Tony.

That's amazing. So we'd be happy to put together a tax plan, a charitable contribution plan, a retirement income plan, a social security maximization plan. We can look at your auto and homeowners insurance and see if we can save you money that way by raising deductibles. So many different things that we can do to help. There is... basically an offer here for a complimentary consultation for anyone that'd like to sit down with us or have a phone call. You can give us a call at 586-226-2100 or visit us on our website, summitfc.net.

All right. Well, Ken, a lot of information packed into this show today. And if you need help sorting it out again, pick up the phone, give Ken and Summit Financial Consulting a call 586-226-2100. 2100. And that does it for today's episode of Money Talks with Summit Financial Consulting, LLC, and our host with the most, Ken Wink. Thank you for joining us for money talks. Don't head into retirement without a strategy that addresses both income and taxes. For more information, please contact Ken Wink at Summit Financial, working with people you trust. Call 586-226-2100 or visit summitfc.net. Join us again soon for another episode of Money Talks.