PLAN NOW FOR 2026
The IRS released updated figures for the 2026 marginal tax brackets and standard deductions[i] providing an opportunity to plan now for income, Roth conversions, and charitable giving next year. By planning now for 2026, you can make the most of your financial strategy, avoiding scrambling at the end of the year.
HIGHER STANDARD DEDUCTIONS – PLANNING FOR CHARITABLE GIVING OR ROTH CONVERSIONS
The IRS announced inflation adjustments to the standard deduction for 2026. In 2026, the standard deduction rises to $16,100 for single filers and $32,200 for those Married Filing Jointly. The increase (and permanence) of higher standard deductions since the 2018 TCJA and the 2025 OBB have meant few taxpayers itemize their deductions when filing taxes. Overall, there was a 69% reduction in the number of returns itemizing deductions from 2017 to 2022. Amongst returns with reported incomes between $100,000 and $500,000 there was a 72% drop in the number of itemized returns during that same period.[ii]
Clearly more filers are using the standard deduction, but doing so may mean they are losing the tax benefit of their charitable gifts. It may also mean they have an opportunity to convert pre-tax retirement dollars to Roth accounts without increasing their tax bill.
Tax Deductions for Charitable Gifts Can Be Lost To The Standard Deduction
Charitable gifting provides those who gift with joy and the satisfaction of helping a worthy cause, and also the opportunity to reduce their tax burden at the same time. However, those opportunities are often lost as the gift gets “swept” up in the standard deduction. Imagine a scenario where a couple with $100,000 of income makes a $10,000 gift to charity. If the couple itemizes, claiming the $10,000 deduction, they then owe tax on $90,000 of income. But they would be foolish to do so because by claiming the standard deduction, they would only owe tax on $67,800. By claiming the standard deduction however, the tax benefit of their gift is lost—they owe tax on the $67,800 regardless of whether they made the gift.
Use Qualified Charitable Distributions to Get Both Deductions
So how to get around this? One way is to utilize Qualified Charitable Distributions (QCD), for those who are eligible to do so. QCDs allow for gifts directly to charities from retirement accounts. The benefits of doing so are two-fold. First, QCD amounts go towards satisfying any Required Minimum Distribution (RMD) amounts. Second, QCD gifts are recorded “above” the line—meaning before Adjusted Gross Income (AGI) is calculated. Thus, even those who claim the standard deduction can get the tax benefit of their gift.
Front Load Gifts Using a Donor Advised Fund to Maximize Your Deductions
Another method is to “front load” contributions to a Donor Advised Fund (DAF). Suppose a couple give $10,000 to their church each year and are not eligible to utilize the QCD. We’ve already seen how their tax benefit gets caught up in the standard deduction. If they were to gift $50,000 to a DAF they establish, they can itemize the $50,000 deduction in the year the deduction was made. They would then distribute only $10,000 from the DAF to the church each year for years 1-5. The church gets $10,000 each year and the couple then itemizes in year 1, taking the standard deduction in years 2 through 5.[iii]
CHANGES FOR 2026 – GIFTING HURDLES AND DEDUCTION LIMITS
There are also changes coming in 2026 to the amount you can deduct for charitable gifts, as well as a “hurdle” which must be met before deductions can be claimed. Specifically, when itemizing, a hurdle in the amount of 0.5% of AGI must be met before deductions can be claimed. Using our same couple with $100,000 of AGI as an example, when making their $10,000 gift, the first $500 (0.5% x $100,000) cannot be deducted—so only $9,500 of the $10,000 gift counts. (The charity gets the full $10,000, of course.)
For higher income filers, there is also a limit on how much can be claimed. Specifically, the OBB caps the deduction at 35%, even for those in the 37% marginal tax bracket. More specifically, it reduces the deduction by 2/37 of the lesser of a) all itemized deductions or b) the amount by which taxable income at which the 37 percent bracket begins.[iv]
For example, if a donor with AGI of $1 million (in the 37% tax bracket) gifts $100,000 to charity, that donor can only deduct $95,000 of the gift because of the 0.5% hurdle. The deduction is further reduced by $5,405 because of the 2/37 reduction. So only $89,595 of the $100,000 gift can be used to reduce taxable income.[v]
The QCD is not subject to these limitations, so it becomes an even more efficient method of giving for high income donors.
INFLATION ADJUSTMENTS TO TAX BRACKETS OFFER ROTH CONVERSION OPPORTUNITIES
Higher standard deductions, coupled with inflation-linked marginal tax brackets, offer a chance to convert pre-tax retirement assets to Roth assets with only minimal increases to the tax bill. For example, in 2025, the standard deduction for Married Filing Jointly is $31,500 and the top of the 22% tax bracket is $ $206,700. For 2026, those figures are $32,200 and $211,400, respectively. Thus, all else being equal, a couple can deduct an extra $700 and also pay 22%, not 24%, on an extra $4,700 of income. Converting that $4,700 to a Roth increases their tax bill by only $800.
ACTIONS STEPS
Proactively planning your charitable giving and Roth conversions now can help you maximize your tax benefits for 2026 and beyond. Here are some steps you can take to get ready:
- Identify charities you wish to support, along with the total and annual amount you wish to provide
- Check if you qualify to make Qualified Charitable Distributions
- Estimate your AGI, along with your AGI “hurdle” and potential 2/37 limit
- Consider establishing a Donor Advised Fund if you need to “front load” your charitable gifts
WealthBridge Capital Management is ready to help you evaluate your income plan and charitable giving plans, to include Roth contribution and conversion analyses, Social Security benefit timing, and retirement plan distributions. If you don’t have a retirement income plan, or your need to update or review your current plan, please reach out to us at 614-591-4515 or email us at info@wealthbridgecm.com to schedule an appointment.
Neither WealthBridge Capital Management, nor its advisors, offer tax advice. Information presented in this document is meant for discussion purposes only and is not intended to be used for marketing promoting, or recommending any transaction. Readers should consult with their CPA or tax professional for advice specific to their individual circumstances.
[i] IRS Revenue Procedure 2025-32
[ii] “Trends in Itemized Deductions Since TCJA”, 03 JUL 2025, www.media.usafacts.org
[iii] There are certain rules and limits pertaining to what can be contributed to a Donor Advised Fund and how much can be claimed as a deduction. Consult your tax advisor for specific questions related to your situation.
[iv] “Year-End Charitable Planning: Big Changes Coming for 2026”, Holland & Knight Alert, Cara Howe Santoro, Kelly L. Hellmuth, www.hklaw.com
[v] ibid