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How H.R. 1’s new charitable deduction floor will shape future giving

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4 minute read 13 Nov 2025
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Tax

One change to charitable giving rules is prompting companies to reassess their charitable strategies while navigating tax implications and stakeholder perceptions.

In brief

  • H.R. 1 establishes a 1% floor on corporate charitable deductions, creating a nondeductible zone for donations below this threshold.
  • Companies are encouraged to consider adopting new giving practices, such as front-loading and bunching donations.

The One Big Beautiful Bill Act (H.R. 1) introduces a new 1% floor on corporate charitable deductions, effective for tax years beginning after December 31, 2025. This change marks a significant departure from prior law, where every qualifying dollar donated — up to a 10% ceiling — was deductible.1 Under the new framework, only contributions exceeding 1% of taxable income will be deductible in the current year. The long-standing 10% total deduction cap remains, and carryforward rules have been expanded to include certain disallowed below-floor amounts.

This shift creates a nondeductible “dead zone” for the first 1% of income donated annually. This means some or all routine or modest charitable gifts (below the 1% floor) will no longer yield tax benefits. An EY Quantitative Economic and Statistics (QUEST) study suggests it could reduce corporate giving by $4.2 billion to $4.8 billion annually.2

central estimate

How EY can help

However, H.R. 1 also presents opportunities for corporations to adopt a more strategic and deliberate approach to tax and corporate philanthropy, enabling them to continue to advance social and business objectives within this new paradigm.

 

Tax implications for corporate donors

 

The new framework requires a more deliberate approach to philanthropy. Tax directors and sustainability leaders are expected to re-evaluate how and when their organizations give.

 

One immediate opportunity stands out: 2025 is the last year with no deductibility floor in place. Businesses can accelerate planned donations into this calendar year to secure full deductibility up to the ceiling, supporting philanthropic goals without constraint. Contributions to donor-advised funds or corporate foundations may be front-loaded in 2025 to preserve deductibility while maintaining steady grantmaking. Finance and sustainability teams should act quickly to identify high-impact initiatives that can be executed before year-end.

 

Looking ahead, corporations should consider available giving approaches, many of which revolve around timing. One approach is “bunching” donations, or consolidating multiyear gifts into single years, to periodically boost the donations that exceed the 1% floor. Some businesses may adopt biennial or triennial giving cycles, skipping years to concentrate donations when they are most tax effective. Integrating charitable giving into quarterly tax provision forecasting helps align philanthropic budgets with financial performance and deduction thresholds.

 

In addition to front-loading and bunching strategies, select charitable expenditures, such as advertising expenses related to qualified event sponsorship, may be reclassified as business expenses under Section 162, which remain fully deductible and are not subject to the floor. Inventory donations can also be evaluated to potentially be recovered as cost of goods sold (COGS) instead of as a potentially limited charitable contribution.

 

Continuing to raise charitable giving in light of these new rules requires close coordination between finance, tax and sustainability teams balancing community impact with tax implications.

 

Sustainability and strategic impact

 

In recent years, there has been a steady shift in alignment of corporate philanthropy programs with sustainability priorities to strategically address impacts across a company’s value chain and drive desired outcomes with communities. The statutory changes under H.R. 1 pose challenges to corporate philanthropy programs by potentially raising the net cost of giving, and with tax benefits diminished, the strategic value of giving becomes paramount.

 

Organizations have an opportunity to use the inflection point that the 1% floor creates to refresh both tax and charitable giving strategies, but these opportunities should be considered on balance with associated limitations:

 

OpportunitiesRisks/constraints
  • Bechmark trends: Assess sector and market trends to inform philanthropy and community engagement strategies.
  • Strategic alignment: Re-evaluate strategy, focus areas and partnerships for alignment with corporate and sustainability objectives.
  • Program integration: Aggregate and coordinate siloed initiatives, programs and partnerships to enhance impact and shared value.
  • Impact measurement: Establish and monitor key performance indicators (KPIs) to evaluate program effectiveness, guide funding decisions and drive measurable outcomes.
  • Continuous improvement: Update initiatives and partnerships to reflect evolving sustainability and business priorities.
  • Data-driven storytelling: Enhance reporting and communication using data to engage stakeholders and address shifts in donation timing.
  • Irregular giving patterns: Overreliance on timing strategies (e.g., bunching) may disrupt nonprofit funding and attract stakeholder scrutiny.
  • Tax complexity: Timing gifts and leveraging donor-advised funds require careful planning and may affect consistency.
  • Documentation and classification: Reclassifying donations as business expenses requires careful documentation and may blur lines between philanthropy and marketing.
  • Stakeholder perception: Fluctuating giving levels can impact internal and external feedback and sustainability ratings.

 

 

 

 

 

 

 

In sum, the new floor can serve as an opportunity for companies to modernize their giving infrastructure and align philanthropy with their sustainability focus areas and financial functions under a unified framework to drive desired outcomes.

Conclusion

H.R. 1 introduces a more restrictive framework for corporate charitable deductions, but with proactive planning, businesses can continue to support philanthropic goals while improving tax and sustainability benefits. The remainder of 2025 is a critical window for strategic action. Tax and sustainability leaders should collaborate now to accelerate giving, reassess long-term approaches and work to confirm that community investments remain impactful, efficient and aligned with corporate purpose and sustainability strategy.

Ernst & Young LLP contributors to this article include Brandon C. Carlton, National Tax Principal, and Gomati Madaiah, Senior Manager – Climate Change and Sustainability Services.


Summary

H.R. 1 introduces a 1% floor on corporate charitable deductions, effective after 2025, limiting tax benefits for modest donations. This shift compels corporations to rethink their giving strategies, emphasizing proactive planning and alignment with sustainability objectives. While it poses challenges, it also offers a chance to modernize philanthropic approaches.

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Related topics
Tax

How EY can help

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