As new federal tax policies take effect next year, economists and philanthropy experts warn that charitable giving in the United States may undergo a significant shift. While the latest legislation introduces fresh incentives for middle- and lower-income households, reductions in long-standing benefits for wealthy donors could ultimately shrink the overall pool of charitable contributions.

The legislation, signed by former President Donald Trump in July, trims several advantages previously enjoyed by high-income filers. Most notably, the effective tax benefit for the wealthiest donors will fall from 37 percent to 35 percent. Researchers at the Indiana University Lilly Family School of Philanthropy estimate that this change alone could cut annual charitable donations by roughly $4.1 billion to $6.1 billion.

The law also tightens rules for itemized deductions, limiting them only to donations that exceed 0.5 percent of a taxpayer’s adjusted gross income. At the same time, the measure expands opportunities for non-itemizers. Beginning next year, an estimated 140 million taxpayers who claim the standard deduction will be allowed to deduct up to $1,000 in cash contributions per filer, even if they do not itemize. Since the standard deduction was raised in 2017, nearly 90 percent of taxpayers have chosen not to itemize.

Although these changes aim to broaden the base of American giving, many experts doubt that contributions from smaller donors can compensate for the expected decline among top earners.

Elena Patel, co-director of the Urban-Brookings Tax Policy Center, noted that while encouraging wider participation in charitable giving is positive, the financial reality remains straightforward. High-income households contribute a disproportionate share of total donor dollars.

“Small donations matter, especially for community organizations,” she said. “But they do not make up the majority of charitable revenue. A two-percentage-point reduction may seem minor, but when you consider the scale of contributions made by the wealthiest households, the impact becomes significant.”

A Divided Economy and Its Influence on Charity

According to the Lilly School’s latest Giving USA report, charitable giving by U.S. households climbed to $392.45 billion last year, marking a 52 percent increase since 2014. Yet the number of Americans who donate has steadily declined. Research from the university shows that the share of U.S. households contributing to charity dropped from 66.2 percent in 2000 to just 45.8 percent in 2020.

Amir Pasic, dean of the Lilly School of Philanthropy, said that expanding participation across income groups could help reverse this long-term decline. “We’ve been facing a trend where total dollars rise but the donor base narrows. Providing incentives for more Americans to give is a step toward rebuilding a culture of broad-based philanthropy,” he said.

Still, Pasic noted that economic pressure is holding back many everyday donors while the wealthy continue to increase their giving. Rising prices, higher interest rates and tariff-related uncertainty are squeezing household budgets. This inequality, often referred to as a “K-shaped” economy, is becoming more pronounced: Lower- and middle-income consumers are cutting spending on everything from fast food to travel, while affluent Americans maintain or increase their consumption and charitable activity.

Will the New Deduction Change Behavior?

Economist Daniel Hungerman remains cautious about the potential of the new deduction to meaningfully boost charitable participation. The provision allows up to $1,000 in deductions for single filers and $2,000 for married couples filing jointly, regardless of whether they itemize.

Hungerman noted that a similar effort in the 1980s failed to significantly change giving patterns. More recently, a temporary $300 deduction introduced during the Covid-19 pandemic raised total donations by only about 5 percent, according to Tax Foundation data.

Furthermore, Trump’s legislation permanently raises the standard deduction—an element that previous studies have shown to substantially reduce charitable donations. Hungerman’s own research concludes that the higher standard deduction introduced in 2017 caused an annual decline of around $16 billion in giving.

However, he also pointed out a potential counter-force: the increased cap on federal deductions for state and local taxes, also known as the SALT deduction. An expanded SALT allowance may encourage more taxpayers in high-cost states to itemize again, which could indirectly boost charitable giving.

Hungerman believes the long-term cultural message might be as important as the immediate financial incentives. Encouraging routine giving across all income levels, he said, could nurture future large-scale donors. “Somewhere among these new small donors is the next Bill Gates,” he said.

What Donors Should Consider Now

For taxpayers planning their philanthropic strategies, timing matters. Those who intend to take the standard deduction in 2026 may gain little from donating this year or next. However, individuals who itemize—and especially high-income donors—stand to benefit more if they accelerate their contributions before year-end.

Robert Westley, senior vice president and regional wealth advisor at Northern Trust, said he is advising many clients to front-load several years’ worth of planned donations into the current tax year. Federal rules allow individuals to deduct up to 60 percent of their adjusted gross income for cash donations to public charities. For contributions involving appreciated assets such as real estate or stock, the limit drops to 30 percent.

Excess deductions can generally be carried forward for up to five years, though Westley noted that the IRS has not yet clarified how the new rules will interact with these carryforwards.

For donors who want to contribute now but are unsure where their money should go, Westley suggests donor-advised funds (DAFs). These funds allow contributors to take an immediate deduction while deciding later which nonprofits to support. They also simplify the process of donating appreciated assets, which can be more cumbersome when given directly to a charity.

With the stock market experiencing strong gains, especially in the technology sector, many investors are turning to charitable donations to offset capital gains and rebalance their portfolios. “For clients whose equity holdings have grown beyond their target allocation, donating appreciated stock allows them to reduce risk exposure without triggering taxable gains,” Westley explained.

The IRS has yet to release full guidance on many aspects of the new rules, including how they apply to non-grantor trusts that make charitable donations. Still, high-income households retain several powerful tools. For instance, individuals aged 73 or older can reduce their taxable income by directing their required minimum IRA distributions to qualified charities.

Westley said this strategy is becoming increasingly popular, especially as the higher SALT deduction cap encourages taxpayers to lower their income to qualify. The enhanced SALT benefit applies to filers with incomes of $500,000 or less and caps out at $40,000.

“You don’t have to navigate itemized deduction thresholds,” he said. “There’s no floor to clear and no ceiling limiting the benefit. It’s a straightforward way to give while meaningfully reducing taxable income.”

As taxpayers, nonprofits and advisors prepare for the changes ahead, one thing remains clear: The coming year will be a pivotal moment for America’s charitable landscape. Whether a broadened donor base can counterbalance reduced giving from the wealthy remains an open question—one that could reshape philanthropy for years to come.