The Tax Bill Will Upend Corporate Giving. Here’s How to Prepare

Giving USA’s recent upbeat report showing record corporate giving in 2024 ran headlong into the “One Big Beautiful Bill.” By upending the tax code, the legislation signed into law on Independence Day will have a significant impact on how much — and how — companies give.

Past changes to the corporate tax structure have correlated with especially significant shifts in corporate donations. Prior to passage of the 1986 overhaul of the tax code, corporate giving averaged as much as 2 percent of businesses’ pretax profits. Since then, the amount companies give to charity has declined steadily and now averages about 1 percent of corporate pretax profits.

What does that mean in real terms? In 2024, corporations would have donated an additional $36.3 billion to charity if they had stuck to the 2 percent level. Instead, at a time when nonprofits are facing significant challenges, the changes to corporate taxation will likely further undermine giving.

The primary culprit is the legislation’s 1 percent floor on the deductibility of charitable contributions by corporations. Currently there is no such floor, so companies can deduct the first dollar they give. But when the legislation goes into effect on January 1, 2026, businesses will need to give away 1 percent of their profits before they can deduct anything.

To illustrate the impact, consider a company that earns $100 million in corporate pretax profits and typically gives $2 million a year to nonprofits. If the first 1 percent, or $1 million, is taxed at the current corporate rate of 21 percent, the company’s giving would likely drop by the same amount, or $210,000, to maintain the aftertax cost of giving — a 10.5 percent decline.

If all corporate giving fell by that much, the total loss could be about $4.6 billion in 2026 — one of the steepest drops in corporate donations on record. Furthermore, this reduction would compound annually rather than rebounding as it has following episodic declines after the Great Recession and other one-time occurrences.

The ‘Bunching’ Option

How might corporate donors respond? When the original Tax Cuts and Jobs Act took effect in 2018, some individual donors reacted to constraints on charitable deductions by doing what’s known as “bunching.” That is, a donor made a large gift to a donor-advised fund every two or three years to qualify for the tax deduction, then used the DAF to fuel their charitable giving in the alternate years while opting for the standard deduction. Could corporations do the same by funding their foundation coffers or a DAF every two or three years rather than annually?

A new report from Independent Sector suggests that just might happen. Corporations, the report suggests, could bunch their giving to exceed the 1 percent floor in certain years to get a tax benefit. If this approach becomes widespread, the study found, it will result in a loss of $4.2 billion in giving annually, slightly less than would be lost if the companies continued to give every year.

Corporate foundations’ legal obligation to distribute 5 percent of assets remains the same, but the new floor targets the funds the company transfers into the foundation, not the foundation’s subsequent grants. So under the bunching strategy, the new tax would slowly erode the amount that companies transfer to their foundations. Giving in this form would still decline, only more slowly.

As ominous as this scenario sounds, an even more troubling result could occur if many corporate donors decide to forgo annual giving altogether since they are unlikely to ever realize the threshold needed to trigger the tax deduction.

A Counterstrategy

Blunting the effects of the new tax policy is possible but would require some strategic rethinking on the part of both corporate foundations and their grant partners. Instead of seeking corporate contributions, for example, nonprofits could pursue earned revenue relationships with the businesses. Under this approach, an education program serving high schoolers could be implemented through a work-force development contract with the parent company rather than with grant funds from its foundation. A corporation that previously funded nutritious meals for preschoolers might instead enter into a long-term research partnership with the same nonprofit to study the benefits of nutrition on early-education outcomes. And an art-exhibition sponsorship would almost certainly be drawn from the company’s marketing budget.

For smaller businesses, it may be more advantageous to forgo giving directly from the company and pass profits on to the C-suite. These highly compensated executives could then be expected to increase their personal giving to achieve the firm’s strategic objectives while taking advantage of more generous tax treatment for giving by individuals — a practice already adopted by partners at some law firms. Such an arrangement would require significant coordination and cooperation to meet the impact achieved through direct company contributions under the current tax code.

Any long-term predictions about how corporations are likely to respond should also recognize the varying reasons companies give. While the tax treatment of charitable donations is a consideration in determining the magnitude, timing, and terms of a gift, it isn’t the only motivation. Good corporate citizenship is good business because it elevates public image, boosts employee engagement, and builds connections with influential stakeholders.

What’s more, some of the largest corporations will be unaffected by the new tax provision because they don’t pay taxes. Nearly 10 percent of companies on the S&P 500 pay no federal taxes and actually received rebates in 2023. That includes Tesla, 3M, and Airbnb, which collectively got $10 billion in tax credits. The new tax rules will do little to change their levels of generosity.

In the near term, the environment for corporations committed to philanthropy will likely be more favorable this year than after the new tax law takes effect. For that reason, grant seekers might ask corporate funders to accelerate their giving — and company foundations should embrace this approach.

Such a strategy would follow historical patterns showing an increase in individual giving after tax code overhauls: Giving went up 16.9 percent in 1986 and 8.4 percent in 2017. Donors apparently wanted to take advantage of beneficial tax policies before they expired. In the year the new tax codes took effect, giving was stagnant.

In one sense, the impact of the new rules for corporate giving will be relatively narrow since less than 8 percent of all charitable donations comes from companies and their foundations. Many nonprofits, however, rely on that support to deliver on their mission. They will need to work with corporate funders to adapt to a new reality and ensure that those who depend on their programs aren’t victims of federal tax policies far removed from their day-to-day challenges.