Summary

• New in 2026: a 0.5% AGI floor on charitable deductions and a top rate drop from 37% to 35% may reduce your deduction value.
• In 2025, QCDs can satisfy RMDs, keep income off your return, and may help with AGI-based items—but funds must reach charities by December 31.
• Additional 2025 tools: gifts of appreciated securities, donor-advised fund contributions, and accelerating multi-year commitments.
• December to-dos: call your custodian, coordinate with charities, document carefully, and work with qualified professionals.
• If you want help from a fiduciary partner, contact our team in Chicago.

With just three weeks remaining in 2025, high-net-worth families face a critical tax-planning deadline—especially for Chicago-area families we serve. Starting January 1, 2026, new federal tax rules will materially change how charitable deductions work, potentially reducing the tax efficiency of gifts made after this year. For families who give regularly—or who are managing large IRA balances with required minimum distributions (RMDs)—2025 may be the final year to maximize charitable strategies under the current, more favorable rules.

For individuals age 70½ and older, Qualified Charitable Distributions (QCDs) remain one of the most tax-efficient ways to support charitable organizations while managing RMD obligations. Understanding the upcoming rule changes and evaluating strategies before December 31 may help preserve tax advantages that will not be available starting in 2026.

2026 Tax Law Changes That Increase Urgency

Beginning with tax years after December 31, 2025, charitable deductions will be subject to new limitations that may reduce the tax benefits for many high-income households.

1. Introduction of a 0.5% AGI Floor for Charitable Deductions

Under the new rule, only charitable gifts that exceed 0.5% of adjusted gross income (AGI) will be deductible.

Examples of the nondeductible “floor” amount:

$1,000,000 AGI → first $5,000 not deductible

$2,000,000 AGI → first $10,000 not deductible

$5,000,000 AGI → first $25,000 not deductible

2. Reduction in Top Deduction Rate

The top federal marginal rate associated with charitable deductions is scheduled to decrease from 37% to 35%, reducing the potential deduction value for high earners.

In 2025, donors are not subject to an AGI floor and may still benefit from the higher marginal rate.

Why Qualified Charitable Distributions (QCDs) Are Especially Valuable in 2025

For individuals age 70½ or older with significant IRA assets, QCDs provide a tax-efficient way to support charitable organizations while fulfilling required minimum distributions.

A QCD allows you to donate up to $108,000 per person in 2025 directly from an IRA to a qualified charity. Because the transfer is paid directly to the charity:

• The distribution is excluded from taxable income.
• It counts toward your RMD for the year.
• It may help reduce AGI-based considerations, such as certain deductions, credits, or Medicare premium calculations.
• Benefits apply even if you take the standard deduction.

For married couples filing jointly, each spouse with their own IRA may be eligible to make a QCD of up to $108,000, for a potential combined amount of $216,000 in 2025.

Critical Timing Requirements for QCDs

For a QCD to count toward the 2025 tax year:

• Funds must be distributed from the IRA directly to the charitable organization by December 31, 2025.
• Many custodians require several weeks to process QCDs.
• Some may offer expedited processing, but availability varies.

If you have not yet initiated a QCD request, contacting your IRA custodian immediately is essential to determine whether processing is still feasible before year-end.

Additional Charitable Strategies That May Be Effective in 2025

1. Gifts of Appreciated Securities

• Deduct the full fair market value, subject to IRS rules.
• Avoid capital gains tax on appreciation.
• Rebalance concentrated positions in a tax-aware way.
  (This can be especially useful during periods when markets are near all-time highs.)

2. Donor-Advised Fund (DAF) Contributions

• “Bunching” several years of planned charitable gifts into a single 2025 contribution may allow you to:
• Capture a larger deduction before the new AGI floor begins.
• Continue making grants to charities over future years.
• Donate appreciated securities for additional efficiency.

3. Accelerating Multi-Year Charitable Commitments
   Families with existing multi-year pledges to educational, medical, or philanthropic organizations may benefit from completing a larger portion of their commitments in 2025, before the AGI floor and lower deduction rate become effective.

Practical Steps for December 2025

1. Contact Your IRA Custodian

• Confirm QCD processing timelines and provide:
• Legal name of the charitable organization
• Address
• Tax identification number
• Any required internal forms

2. Coordinate With Charitable Organizations

• Notify charities that a QCD or large donation is incoming. Many organizations experience high December volume and may have delayed acknowledgment processing.

3. Maintain Precise Documentation

• For tax and compliance purposes:
• Keep records of dates, amounts, and delivery method.
• Ensure QCDs reflect a direct transfer from custodian to charity.
• Retain acknowledgment letters and receipts from charitable organizations.

4. Consult Qualified Professionals
   Charitable strategies interact with tax planning, RMD requirements, investment strategy, and estate planning. A coordinated approach can help ensure accuracy and alignment with broader financial goals. Working with a fiduciary financial advisor can help you make informed, client-first decisions.

Illustrating the Potential Tax Impact

Consider a household with $2 million AGI and $50,000 in annual charitable giving:

2025 under current rules:

• Full $50,000 potentially deductible
• At 37% marginal rate → $18,500 deduction value

2026 under new rules:

• First $10,000 (0.5% AGI floor) not deductible
• $40,000 potentially deductible
• At 35% marginal rate → $14,000 deduction value

Difference: approximately $4,500 less in annual deduction value.

The cumulative impact may be larger for families using donor-advised fund bunching or higher annual charitable giving levels.

Strategic Considerations for Families

The combination of:

• Upcoming tax law changes
• IRA distribution requirements
• Market conditions
• Tight year-end timelines

creates a unique planning window for 2025. QCDs, appreciated securities gifts, and donor-advised fund contributions may be effective tools—but each requires proper execution before year-end.

If you want to see how these strategies fit your broader plan, explore our wealth management services, integrated financial planning, and approach to tax-efficient investing. Families considering these strategies should evaluate next steps promptly, ideally with support from qualified tax and financial professionals. If you’d like guidance or help executing before December 31, please contact our team.

Note: This material is for educational purposes only and should not be construed as tax or legal advice. Consult your tax advisor or attorney about your specific situation.