Clark Howard Says Congress Passed a Law That Specifically Punished People for Giving Money to Charity

A listener named Chris from California put the problem plainly: “We donate about $5,000 every year and plan to continue doing so, but receive no tax benefit.” His family gives generously, gets nothing from the IRS for it, and wanted to know if there was a legal fix. There is, and it works better than most people realize.

Consumer finance expert Clark Howard addressed this directly on the April 3, 2026 episode of The Clark Howard Podcast. His diagnosis was pointed: “Congress passed a law in ’25 that specifically punished people for giving money to charity.” That framing is sharp, but the underlying mechanics support it. The law in question is the One Big Beautiful Bill Act (OBBBA), signed on July 4, 2025, which permanently raised the standard deduction and made several other sweeping tax changes.

Why the 2025 Tax Law Effectively Erased Charitable Deductions for Most Givers

The standard deduction is the culprit. When Congress raised it through the OBBBA, it crossed a threshold where the majority of American households no longer benefit from itemizing. Charitable contributions are only deductible when you itemize, and you only itemize when your total deductions exceed the standard deduction. For a married couple filing jointly, the standard deduction sits at $31,500 for tax year 2025, rising to $32,200 for tax year 2026. A family giving $5,000 per year to charity, with modest mortgage interest and state taxes, will almost certainly fall short of that bar. The donation is real, but the deduction disappears entirely.

That is the punishment Howard is describing. The OBBBA did not eliminate the charitable deduction by name. It rendered the deduction functionally useless for anyone who does not already carry enough other deductions to clear the standard deduction threshold on their own. With the standard deduction at its highest level in modern history, a far greater share of American households now find itemizing simply out of reach.

A Partial Remedy Starting in 2026

One element of the same law Howard criticized also creates a small but real fix. Beginning with the 2026 tax year, the OBBBA allows non-itemizers to deduct up to $1,000 in cash charitable contributions directly on Form 1040 without itemizing, or up to $2,000 for married couples filing jointly. This above-the-line deduction is permanent, though the dollar amounts are fixed and not indexed for inflation. For Chris’s family in California, that means a $2,000 federal deduction they can claim right off the top starting this year, regardless of what their other deductions look like.

There is an important limitation. The new non-itemizer deduction applies only to direct cash gifts to eligible 501(c)(3) organizations. Contributions to donor-advised funds do not qualify, and that distinction matters for the strategy Howard went on to recommend. A $2,000 deduction also does not fully restore the value of $5,000 in annual giving, which is why the bunching approach remains relevant for households that want to maximize the tax benefit of larger charitable budgets.

Also worth noting for 2026: the OBBBA added a new 0.5% AGI floor on charitable deductions for itemizers. Under that rule, only contributions exceeding 0.5% of adjusted gross income are deductible on Schedule A. For most middle-income donors, this threshold is modest enough to rarely disqualify a gift entirely, but it does add a calculation step and can slightly reduce the deduction value of smaller gifts.

Also relevant for Chris’s California situation: the OBBBA raised the SALT deduction cap from $10,000 to $40,000 for the 2025 tax year, then to $40,400 for 2026, with 1% annual increases applying in 2027, 2028, and 2029 before the cap reverts to $10,000 in 2030. The expanded cap phases out for incomes above $500,000 in 2025 (rising to $505,000 in 2026). For California homeowners below that threshold, the higher SALT cap alone could push itemized deductions above the standard deduction threshold, restoring the full value of their charitable deductions without any bunching strategy at all.

The Bunching Strategy: How a Donor-Advised Fund Changes the Math

The fix Howard recommends is called bunching, and a donor-advised fund (DAF) is the mechanism that makes it practical. Instead of giving $5,000 per year across five years, you deposit a large lump sum into a DAF in a single year, large enough to push your itemized deductions above the standard deduction threshold and generate a real tax benefit. You then direct grants from the DAF to your chosen charities over the following years at whatever pace you prefer.

The critical tax mechanic: the deduction happens when you fund the DAF, not when you direct money to individual charities. The IRS treats the DAF contribution as the charitable act. What happens inside the fund afterward runs on your own timeline.

For Chris’s family, contributing five years of planned donations in one year means depositing $25,000 into a DAF at once. That single move could tip them into itemizing territory, unlocking a deduction that five separate $5,000 gifts never would have. DAFs have grown sharply in popularity as a giving vehicle, with the number of Fidelity Charitable accounts rising 13.4% to 246,006 in 2025. Fidelity Charitable alone granted a record $18.3 billion to charities that year, a 23% increase over the prior year.

The Appreciated Stock Angle: Avoiding Capital Gains While Giving

Howard went further, and this is where the strategy becomes genuinely powerful for anyone holding investments in a taxable brokerage account. Instead of contributing cash to a DAF, you can contribute appreciated stock, ETFs, or mutual funds directly. Howard explained the tax outcome: “You don’t pay capital gains tax, and you get the full benefit of a charitable donation on what the stock, ETF, mutual fund, or index fund is worth at the time you migrate that money to the donor-advised fund. So it’s a double tax benefit.”

Here is how that plays out in practice. Suppose you bought an index fund for $8,000 that is now worth $20,000. Selling it to raise cash for charity triggers capital gains tax on the $12,000 gain. Transferring the shares directly to a DAF instead means owing nothing on the gain and deducting the full $20,000 market value. The double benefit Howard describes is real, and it remains one of the least-understood tools in personal finance.

Which DAF to Use and Who This Strategy Fits

Howard named his three preferred DAF providers as Vanguard (lowest cost for larger balances), Fidelity, and Schwab, calling them his “3 favorite children.” He disclosed that he personally uses both a Schwab and a Vanguard DAF. Fidelity Charitable and Charles Schwab (NYSE:SCHW | SCHW Price Prediction) both offer DAFs with no minimum contribution to open. Vanguard Charitable, by contrast, requires a $25,000 minimum for new accounts, which happens to align closely with the five-year bunching amount in Chris’s example. Accounts at Vanguard Charitable that fall below $25,000 are subject to an annual maintenance fee of $250. For donors starting with smaller amounts, Fidelity or Schwab are the more accessible entry points.

This strategy works best for households that give consistently but fall below the itemization threshold each year and hold appreciated assets in taxable accounts. Households that already itemize comfortably, or those whose appreciated assets sit entirely inside retirement accounts, see less benefit from this approach. And as noted above, households in high-tax states should first check whether the higher SALT cap alone pushes them over the itemization bar before going through the mechanics of DAF bunching.

Editor’s note: This pass added the OBBBA’s new 0.5% AGI floor on itemized charitable deductions for 2026, clarified that the SALT cap’s 1% annual step-up applies in 2027 through 2029 (not starting from 2026), added the income phasedown threshold for the expanded SALT cap, and included updated Fidelity Charitable account-growth figures from the 2026 Giving Report showing 246,006 accounts, up 13.4% in 2025.

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