Charitable Giving and After-Tax Planning: Key 2026 Considerations

Key takeaways

• As of January 2026, the One Big Beautiful Bill limits the value of charitable giving for those in the top tax bracket.
• That new rule, combined with the unusual way Net Investment Income gets calculated, means that advisors to top bracket investors may want to switch from using two rates in their tax planning to three.

For optimizing after-tax planning and charitable giving for top-bracket investors, most advisors typically consider two federal tax rates for individuals, one for ordinary income and short-term capital gains and the other for qualified dividend income and long-term capital gains. The table below shows the rates, which usually reflect inclusion of the 3.8% tax on Net Investment Income (NII).

What changed for charitable deductions in 2026

However, when analyzing the implications for decisions that involve both investment returns and charitable giving, it has become appropriate to use three separate rates instead of two for certain analysis.

How does calculating the value provided by donations make a third rate necessary? First, because the tax on NII is calculated before subtracting itemized deductions, charitable donations can’t reduce that liability.¹ Therefore, the total rate (including tax on NII) applied to ordinary investment income will be higher than the rate of savings from any charitable deduction. Furthermore, the One Big Beautiful Bill (OBBB) passed in 2025 lowers the benefit of charitable donations for top-bracket taxpayers from 37% to 35% beginning in 2026.²

The table below shows the impact of the combination of NII tax and the new OBBB limit.

Why this matters for after-tax planning

With the passage of OBBB, the spread in the applicable tax rate is now nearly 6%, the difference between 40.8% and 35.0%. Why does that wider spread matter for investors and their advisors? Advisors and high-net-worth investors frequently plan around the interplay between optimal charitable giving and investment income. For example, if a family office with strong charitable intent is analyzing the trade-offs of shifting ordinary income³ into a tax year with high donations, the income may get taxed at a rate nearly 6% higher than applied to value the deductions.

Many taxpayers realize that charitable donations that pass through Schedule A can often reduce income subject to the higher tax rate for ordinary or short gains, but unfortunately they may not get the full benefit of offsetting at the same rate at which the income would be taxed.

Tax-efficient charitable strategies advisors can consider

What steps can a top-bracket taxpayer take to address the new higher rate discrepancy? First, for such taxpayers who happen to be age 70.5 or older, Qualified Charitable Distributions (QCDs) of up to $111,000 per year can be made from IRAs⁴ in lieu of required minimum distributions (RMDs) for tax year 2026. Note that the tax rate on such RMDs would otherwise be at the 37.0% rate, not 40.8%, but that’s still better than the 35% rate applicable to Schedule A charitable donations. Furthermore, QCDs avoid the 0.5% floor for charitable donations and also eliminate the need to plan around when itemized deductions exceed the standard deduction, making them a highly effective means of making donations for top-bracket taxpayers of a certain age.

Second, donating appreciated securities subject to long-term gain also remains an attractive way to contribute to charity. While many taxpayers and advisors understand the benefit of donating such assets rather than cash, IRS data from 2021⁵ shows that for taxpayers with more than $1 million in income, 64% make charitable contributions in cash and 78% have long-term gains. However, only 8% of those top-bracket taxpayers contribute long gain assets to charity, indicating an underused planning opportunity. Though the value of the deduction remains capped at the 35% rate, the added benefit of eliminating capital gain on the donated assets still makes this a compelling technique.

As with all after-tax analysis, it helps to “do the math,” which in the case of charitable giving for top-bracket taxpayers may mean inputting three different tax rates depending on the type of income or deduction.