The 2025 federal budget bill, H.R. 1 (aka “One Big Beautiful Bill”) includes several provisions that affect charitable donations. Simultaneously, other actions by the federal government will be affecting issues important to physicians including new limits to student loan amounts that will affect the ability of medical students to afford to attend medical school, reductions in insurance coverage for vaccinations of children and pregnant women, reductions in federal support for research grants, etc. These actions have resulted in many physicians wanting to donate money to charities to address these issues. S0, how should they do so in view of the new laws affecting charitable donations?
As a whole, physicians (1) have higher incomes and (2) generally pay more in state income taxes, local income taxes, and property taxes than other Americans. These two factors also result in the new laws regarding donations to charity affecting physicians more than most other professions.
Changes to the SALT deduction limit
On your federal income tax returns, you have the option of either taking the standard deduction or itemizing deductions on Schedule A. If the total of your itemized deductions is less than the standard deduction, then it is better to take the standard deduction. On the other hand, if the total of your itemized deductions is greater than the amount of the standard deduction, then it is better to itemize. Expenses that are commonly itemized on Schedule A include charitable donations, mortgage interest, student loan interest, capital losses, property tax, state income tax, local income tax, and sometimes sales tax.
In the past, the amount of the standard deduction was relatively low and many people itemized their deductions. For itemizers, writing off charitable donations was relatively easy. You simply entered the amount of money donated to a qualified charity on Schedule A of your federal income tax returns and your taxable income for that year would be reduced accordingly.
In 2018, that all changed when the amount of the standard deduction for individuals nearly doubled from $6,350 to $12,000. For married couples filing jointly, it increased from $12,700 to $24,000. Coincident with that, the amount a taxpayer could deduct on their Schedule A for state and local taxes (SALT) was limited to $10,000 (prior to 2018, there was no limit on the amount of this deduction). Notably, SALT includes not only state and local income taxes but also includes property taxes. The result was that in 2018, the amount of itemized deductions other than SALT had to exceed $14,000 ($24,000 – $10,000) for a married couple filing jointly to exceed the standard deduction. For most people, itemizing became less advisable than taking the standard deduction. By 2024, that same couple with $10,000 or more in SALT deductions would need to have $19,200 of additional itemized deductions to make itemization preferable to taking the 2024 standard deduction of $29,200.
The 2025 budget bill increases the limit of the state and local tax deduction from $10,000 to $40,000. In 2025, the standard deduction will be $15,750 for single filers and $31,500 for married filing jointly. The net effect of these changes is that many physicians who pay a large amount in property tax, mortgage interest, state income tax, and local income tax will now find it more advantageous to itemize deductions instead of taking the standard deduction in 2025. And remember, if you have a second home that you use as a vacation property, you can include the property taxes paid on the second home in your SALT deduction as well. Physicians who are newly able to itemize deductions because of the higher SALT limit can now reap greater tax benefits by donating to charity than they could in past tax years.
One caveat is that the increased state and local tax deduction limit of $40,000 only applies to those with an income less than $500,000 per year. For those with incomes over that amount, the SALT limit drops in a phased-in fashion down to $10,000 per year.
New rules for charitable deductions
There are two provisions in H.R. 1 that affect the amount of money taxpayers can deduct for contributions to charities – one that affects itemizers and one that affects non-itemizers. Importantly, these provisions take place beginning in 2026 (NOT in 2025).
- Non-itemizers. These are taxpayers who take the standard deduction of $15,750 single filers or $31,500 joint filers. Even though they do not itemize deductions they still get to take a small deduction for charitable contributions of up to $1,000 for single filers or $2,000 for joint filers.
- Itemizers. These are taxpayers who do not take the standard deduction because the amount of their itemized deductions is greater than the standard deduction. Here is where things get complicated. There is a “floor” on the amount of charitable contributions that can be deducted of 0.5% of your adjusted gross income. What this means is that you can only deduct charitable contributions that exceed 0.5% of your adjusted gross income. As an example, if your adjusted gross income in 2026 is $300,000, then you cannot deduct the first $1,500 of charitable contributions ($300,000 x 0.5%). Any amount over $1,500 can be deducted on your Schedule A. The maximum amount that can be deducted is 60% of your adjusted gross income – any amount over that can be carried over to the following year’s income tax return.
The net result of these changes is that for taxpayers who have lower amounts of state and local taxes (including property taxes), there will a tax advantage to making small charitable contributions. For those with higher amounts of state and local taxes, there is no tax advantage of making small charitable contributions (< 0.5% of adjusted gross income) but there is a tax advantage of making larger charitable contributions (> 0.5% of adjusted gross income.
2025 is a particular good year for doctors to donate to charities
Because these new rules for charitable deductions don’t go into effect until 2026, but the state and local tax deduction (SALT) increase to $40,000 goes into effect in 2025, there are tax advantages for physicians and other people with relatively high incomes and/or high property taxes to donate to charities this year (2025) as opposed to next year (2026). In 2025, you will be able to deduct all of your charitable contributions whereas beginning in 2026 only contributions exceeding 0.5% of your adjusted gross income can be deducted. This makes 2025 a window of opportunity to take advantage of the increase in the SALT limit without the 0.5% of adjusted gross income “penalty” of the charitable deduction floor. In other words, your charitable contributions will be more tax deductible this year than next year.
What about donor-advised funds?
A donor-advised fund is a way that a taxpayer can take a large tax deduction in one year and then spread out the charitable distributions from that deduction over several years. Here is how they work: First, you open a donor-advised fund from an investment company (such as Vanguard or Fidelity) or from a community foundation (such as the Columbus Foundation in Central Ohio). Next, you contribute an amount to that donor-advised fund in a particular year and you can deduct that amount on that year’s income tax return. Then you can “advise” your donor-advised fund to distribute the money to various charities over a several year period. As an example, a person contributes $25,000 to a donor-advised fund in 2026. That person then takes a $25,000 tax deduction in 2026 and then directs the fund to distribute $5,000 to the American Red Cross every year for the next five years.
An advantage of donor-advised funds is that if a taxpayer has an unusually high taxable income in one year, that taxpayer can make a large contribution to the donor-advised fund that year, thus reducing their taxable income and reducing their effective income tax rate. That individual can then make charitable distributions from the fund in other years when their taxable income is lower. A disadvantage of donor-advised funds is that they typically come with management expenses that can erode the value of the money held in the donor-advised fund.
For taxpayers who normally do not itemize and who normally donate < $1,000 filing single or < $2,000 filing jointly, there is no tax advantage to using a donor-advised fund. Instead, you are better off just taking the up to $1,000 or $2,000 annual charitable contribution deduction each year. For non-itemizers who normally donate more than $1,000 filing single or $2,000 filing joint, there may be a tax advantage to contributing a one-time large amount to a donor-advised fund and then itemizing that particular tax year. But you have to do the math to decide whether you benefit more by taking a larger tax deduction in one year by itemizing or benefit more by taking the $1,000 or $2,000 deduction as a non-itemizer over several years. Also, determine whether the management expenses of the donor-advised fund outweighs the tax benefit.
For taxpayers who normally itemize and who normally donate less than 0.5% of their adjusted gross income to charity, a donor-advised fund can result in tax savings. By making a large contribution to the donor-advised fund in one year that exceeds 0.5% of adjusted gross income, you can add that contribution to your itemized deductions for that single year and then advise the fund to distribute to charities over the next several years. As an example, a married couple who itemize their deductions and who have an adjusted gross income of $300,000 normally donates $1,200 to their church each year. Since $1,200 is less than 0.5% of their adjusted gross income, they are not able to deduct that $1,200 on their Schedule A. However, if they contribute $6,000 to their donor-advised fund in 2026, they can deduct $4,500 on their 2026 tax return ($6,000 minus 0.5% x $300,000). They can then “advise” the fund to donate $1,200 to their church in 2026, 2027, 2029, 2029, and 2030.
Taxpayers who normally itemize and who normally donate more than 0.5% of their adjusted gross income to charity can also get a tax savings by utilizing a donor-advised fund for their charitable contributions. For example, a married couple with a gross taxable income of $300,000 who itemize normally donates $10,000 per year to their alma mater’s scholarship fund. Because charitable contributions amounting to the first 0.5% of their gross taxable income ($1,500) is not tax deductible, over the course of 5 years, they will contribute $50,000 to their alma mater but only $42,500 will be tax deductible over that 5-year period. If they instead contribute the entire $50,000 to a donor-advised fund in 2026, then $48,500 will be deductible in 2026. They can then “advise” the fund to distribute $10,000 to their alma mater in each of 2026, 2027, 2028, 2029, and 2030. By using a donor-advised fund strategy, the couple was able to deduct $8,000 more than if they had made annual charitable donations without using a donor-advised fund.
What about taxpayers older than age 70 1/2?
Tax laws permit people over age 70 1/2 to contribute to charities directly from a traditional IRA. By doing so, those withdrawals from the IRA do not appear as taxable income for those individuals. These are called “qualified charitable distributions” (QCDs). There is a limit of up to $100,000 of QCDs per year per individual over age 70 1/2. Also, QCDs can only be made from traditional IRAs and cannot be made from other tax-deferred retirement plans such as 401(k)s, 403(b)s, and 457s. In addition, the QCD must be paid directly from the traditional IRA to the charity. In other words, the taxpayer cannot take money out of the traditional IRA, put it in their checking account, and then pay the charity from their checking account. QCDs are not listed on your Schedule A; instead, they will appear as a non-taxable distribution on your traditional IRA’s 1099 form that is then reported on your 1040 form.
For married couples filing jointly, each spouse over age 70 1/2 can do an annual QCD of up to $100,000 so if both spouses are over age 70 1/2, then they can each take up to $100,000 from their own traditional IRA for a total of $200,000 between the two of them combined.
QCDs do count toward required minimum distributions (RMDs) which is the minimum amount a person must withdraw from a tax-deferred retirement plan each year after age 73. Importantly, each tax-deferred retirement account has its own RMD every year so if a taxpayer has traditional IRA, a 401(k), and a 403(b), a certain amount needs to be withdrawn from each of them every year. Therefore, although up to $100,000 of a QCD from a traditional IRA can count toward the required minimum distribution from that IRA, the taxpayer would still need to take additional RMDs from their 401(k) and 403(b). However, there is a work-around; the taxpayer can roll the 401(k) and 403(b) over into the traditional IRA and then the next year, that taxpayer would only have the RMD from the traditional IRA to contend with. This can make RMD management much, much easier but can be a bit complicated, so it is best to consult with a tax professional before age 73 to carefully plan rollovers in advance so that you do not inadvertently create a tax headache by not adhering to IRA rollover rules and RMD rules. Note that Roth accounts, such as a Roth IRA, are not subject to required minimum distributions.
Because of qualified charitable deductions, many of the tax advantages of donor-advised funds do not apply for those over age 70 1/2, so it may be less advantageous for those over age 70 1/2 to contribute to a donor-advised fund from an income tax standpoint. However, there are other features of donor-advised funds that may make them attractive to those over this age, such as permitting shares of stock to be contributed to donor-advised funds, thus avoiding capital gain taxes when those stocks are sold; having the balances of donor-advised funds grow tax-free; and the ability to name a successor advisor to permit charitable donations from the donor-advised fund after an individual’s death.
The U.S. tax code is hopelessly complex…
Every year, congress adds some provisions to our tax laws, eliminates some existing provisions, and revises yet other provisions. The result is a complicated tax system that has become nearly impossible for average Americans to navigate on their own. Most of us get help from either a professional tax preparer or from tax software programs. The 2025 budget bill adds even more complexity to the tax code.
Legally and ethically, we all need to pay our appropriate share of taxes as dictated by the tax code. But none of us should pay more than we are legally required to pay. Carefully planning the timing of your charitable deductions and consideration of a donor-advised fund can ensure that you pay your fair share of income taxes without overpaying those taxes.
July 18, 2025
