“One Big Beautiful Bill” - New Tax Rules & Action Steps to Prepare Your Organization for 2026
Introduction
The “One Big Beautiful Bill” (OBBBA) is not so beautiful for many nonprofits.
While some smaller community groups (like food shelves and faith-based organizations) may see financial benefits, others—such as arts organizations, universities, hospitals, and advocacy nonprofits—face significant new challenges.
This post provides a practical summary of key details, including specific recommendations and action steps to help your nonprofit thrive in the years ahead.
The changes discussed below take effect starting January 1st 2026.
Congress estimates the bill will raise $74 billion over 10 years from small donors thanks to a universal charitable deduction. But it could also reduce nonprofit funding by $81 billion as corporate and wealthy donors scale back.
Here’s what nonprofit leaders need to know…
Advocacy & Watchdog Impact
This bill doesn’t outright ban advocacy—but does make advocacy harder, riskier, and more expensive.
Private foundations face new excise taxes if they fund nonprofits engaged in even mild advocacy.
501(c)(3)s must tread carefully with public education, voter forums, or policy work—compliance risks just went up.
New rules expand what counts as “campaign intervention,” creating legal gray zones.
The likely effect? A chilling impact on nonprofits that hold government accountable or push for policy change.
Corporate Giving: A Higher Bar
Businesses used to deduct charitable gifts immediately. Even a modest $5,000 or $25,000 donation reduced taxable income in the past.
Starting January 1, 2026, this changes. Under OBBBA, corporations must now give at least 1% of their taxable income over the course of the tax year before any charitable donations qualify for a deduction.
Example: If a company has $10M in taxable income, the first $100,000 of giving produces no tax benefit.
So if the example corporation donates $50,000 total during the year, it receives no deduction.
If it donates $150,000 total, only the amount above the $100,000 floor ($50,000) is deductible.
In short: deductions are no longer tied to each individual gift—they’re based on the year-end total. Corporations only receive tax benefits if they cross the 1% threshold.
This new rule makes smaller and mid-sized corporate gifts less attractive, particularly for businesses that can’t—or won’t—commit enough to clear the floor.
Nonprofits may need to encourage:
Bundled giving (combining annual sponsorships, campaigns, or event support into one larger gift).
Collaborative asks with peer organizations so companies see value in crossing the threshold.
Executive Compensation & Compliance
Perhaps the most surprising change: executive pay rules will be applied retroactively.
Any employee paid over $1M since 2017 could trigger a 21% excise tax, even if they are no longer with the organization. This applies to hospitals, universities, large nonprofits, and private foundations.
Organizations may need to audit 8 years of payroll records—and some could owe millions in back taxes. Large nonprofit healthcare systems for example.
Foundations
Foundations once enjoyed relatively light taxation. Under OBBBA, that advantage narrows significantly.
Excise tax on investment income: Previously, foundations paid a flat 1.39% tax on their investment income. Under OBBBA, this becomes a tiered system that can rise to as much as 10%, depending on the foundation’s size and portfolio returns.
Important note: This is a tax on new investment income, not on donor contributions or the endowment principal itself. Still, it’s critical because investment income is the pool foundations use to fund their annual grants.
University endowments: Large endowments—often in the billions—face an even steeper burden, with taxes as high as 21% on investment returns.
Why it matters:
Less money for grants: Higher taxes on investment income mean fewer dollars available to meet annual payout requirements. For large foundations, the drop could be in the millions each year.
Strategic shifts: Foundations may respond by:
Reducing the number or size of grants
Becoming more selective in who they fund, favoring lower-risk recipients
Adjusting investment strategies to manage exposure
Ripple effects: Nonprofits that rely heavily on foundation grants—especially universities, hospitals, and advocacy organizations—will need to diversify funding streams.
Wealthy Donors
Major donors face tighter limits:
New floor: Must give 0.5% of AGI (Adjusted Gross Income) before deductions start
New cap: Deductions capped at 35% of AGI (down from 60%)
Example: Someone with $1M income must give more than $5,000 just to claim a deduction. If they give $500K, only $350K is deductible.
This could discourage big gifts, slow down capital campaigns, and shift money into donor-advised funds.
Everyday Donors: A New Incentive
Here’s the silver lining:
Individuals can now deduct up to $1,000 (singles) or $2,000 (married couples) without itemizing.
For the first time, millions of Americans have a tax incentive to give—no itemizing required.
Analysts estimate this change could boost small-donor giving by $74B over 10 years.
This may spark a wave of small recurring donations that nonprofits can tap into.
What Nonprofits Should Do Now
1. Adjust Fundraising Strategy
Invest in small-donor campaigns (including recurring monthly gifts).
Tell compelling stories with video, photos, even written content that connect everyday donors to your mission with clarity and excitement.
2. Educate Donors
Let businesses know about the 1% floor and encourage larger, strategic gifts.
Help individuals understand the new deduction rules. Talk with your tax professional for advice.
3. Plan Ahead
Expect a spike in giving in late 2025 as donors “bunch” gifts before the rules hit full effect.
If you’re a larger nonprofit, audit executive compensation records back to 2017 to assess exposure.
4. Get Creative
Pool proposals: Partner with other nonprofits to help corporate partners surpass the 1% giving tax floor.
Strategic bundling: Align annual drives to maximize donor incentives all at once, if possible.
Closing Thoughts
Key takeaways:
Small donors gain tax benefits
Large donors and corporations lose tax efficiency
Advocacy nonprofits face higher risks
Foundations and universities pay more in taxes
Nonprofits must shift strategies—fast
Now is the time to:
Rebalance donor strategies
Strengthen small-donor pipelines
Talk with your board and plan for 2026 and beyond
