The One Big Beautiful Bill Act

Executive Summary: The One Big Beautiful Bill Act (OBBBA), signed into law in April 2025, represents a potentially significant restructuring of tax incentives affecting philanthropic organizations. For investment committees and foundation boards managing $10 million or more in assets, this legislation may introduce material changes to donor behavior, institutional costs, and service demand patterns that merit sophisticated financial analysis and strategic planning.

This article examines OBBBA's provisions through the lens of investment strategy, portfolio construction, and fiduciary decision-making for institutional investors in the philanthropic sector.

Key Provisions at a Glance

Provision	Effective Date	Primary Implication	Investment Committee Considerations
Universal Charitable Deduction ($1K/$2K)	Jan 1, 2026	May broaden donor base	Model contribution patterns for smaller donors
0.5% AGI Floor for Itemizers	Jan 1, 2026	May reduce mid-level giving	Potential volatility in $5K-$25K donor segment
Charitable Deduction Value Cap (35% vs. 37%)	Jan 1, 2026	May reduce high-dollar contributions	Q4 2025 surge likely; 2026-27 adjustment possible
Corporate 1% Giving Floor	Jan 1, 2026	May restructure corporate giving	Potential concentration of fewer, larger gifts
Executive Compensation Excise Tax	Jan 1, 2026	21% tax on expanded covered remuneration	May create portfolio drag for certain organizations
Tiered University Endowment Tax	Jan 1, 2026	Tax on university net investment income 1.4% ($500K-$750K/student) 4% ($750K-$2M/student) 8% ($2M+/student) Illustrative — see statute for calculation rules	Fundamental spending policy recalibration needed
$15M/$30M Estate Exemption	Jan 1, 2026	May reduce bequest motivation	Emphasize impact over tax benefits
$1,700 Scholarship Credit	Jan 1, 2027	May redirect dollars to education	Competitive pressure for non-education orgs

I. The Changing Donor Landscape: Modeling 2026-2028 Contribution Scenarios

Understanding how tax changes may reshape giving patterns is essential for cash flow modeling and spending policy decisions.

Provisions That May Increase Giving

Universal Charitable Deduction

• May create tax incentives for approximately 90% of taxpayers who take the standard deduction
• Up to $1,000 (single) or $2,000 (joint) starting January 1, 2026
• Excludes donor-advised funds, supporting organizations, and private foundations
• According to the Joint Committee on Taxation (JCX-29-25), this provision is estimated to generate approximately $74 billion in additional contributions over 10 years, though actual results may vary based on donor behavior and economic conditions. (See JCT revenue estimates for detailed projections)

Preserved and Enhanced Incentives

• Permanent extension of 60% AGI limit for cash contributions
• $1,700 scholarship tax credit (effective 2027) for educational giving

State and Local Tax (SALT) Deduction Increase

• SALT cap increased from $10,000 to $40,000 for 2025
• Annual 1% increase through 2029, then reverts to $10,000 in 2030
• Phase-out for taxpayers with modified AGI above $500,000 ($250K for married filing separately)

Potential Indirect Charitable Giving Impact:

The expanded SALT deduction may have competing effects on charitable contributions:

• Potential positive effect: More taxpayers may find it worthwhile to itemize deductions, potentially making charitable contributions tax-deductible for a broader base
• Potential negative effect: Higher SALT deductions could reduce the incremental value of charitable contributions in pushing taxpayers over the standard deduction threshold
• Analyst estimates: Some analysts (e.g., Tax Foundation) estimate that OBBBA could materially change itemization patterns—estimates vary by model; monitor actual 2026 tax returns for definitive data. (See Tax Foundation analysis for modeling assumptions)
• Net effect uncertain: Investment committees may wish to monitor actual itemization patterns through 2026-2027 tax seasons to better understand regional and donor-specific impacts

Provisions That May Decrease Giving

0.5% AGI Floor for Itemizers

• Couples with $300,000 AGI must exceed $1,500 in contributions before receiving tax benefit
• May disproportionately affect $5,000-$25,000 annual donors
• Potential impact: This segment often forms the backbone of foundation donor bases

Charitable Deduction Value Cap for High-Income Donors

• Limits the value of itemized charitable deductions for top-bracket taxpayers to 35% of contribution value (vs. 37% marginal benefit currently)
• Applies to taxpayers in the 37% tax bracket starting January 1, 2026
• Reduces benefit from $370 to $350 per $1,000 donated (5.4% reduction)
• Independent Sector research: High-income donors demonstrate significant tax-sensitivity in giving decisions
• Historical context: Lilly Family School of Philanthropy studies confirm that marginal tax rate changes may affect donation timing and amounts among top earners
• According to the Joint Committee on Taxation (JCX-29-25), the combination of the universal deduction and limits on itemized deductions is estimated to yield net revenue changes of approximately $64.9 billion over 10 years. (See JCT table for line-item detail)

Planning Response:

• Accelerate 2025 gifts: Donors considering major contributions may wish to complete them before December 31, 2025
• Multi-year pledges: Consider front-loading payment schedules to potentially capture 37% benefit
• Bunching strategies: Consolidate multiple years of giving into 2025 to potentially maximize current deduction rate

Corporate Giving Floor

• New 1% floor: corporations may deduct only contributions exceeding 1% of taxable income, subject to corporate tax posture, NOL availability, and deductible income definitions under Treasury guidance
• Existing 10% ceiling remains (deductions generally limited to contributions between 1% and 10%)
• Complex carryforward rules: Contributions below 1% floor can only be carried forward if corporation exceeds 10% ceiling
• JCT revenue estimate: Projected $16.6 billion over 10 years (see JCX-29-25)
• Independent Sector research: Estimates average annual reduction in corporate giving of approximately $4.5 billion

Potential Investment Committee Implications:

This provision may create a "deductibility band" from 1-10% of taxable income, potentially changing corporate giving patterns:

• Possible consolidation pressure: Corporations with modest profitability may eliminate small charitable contributions entirely if they cannot reach the 1% threshold
• Strategic timing considerations: Profitable corporations may bunch multi-year commitments into single tax years to potentially maximize benefit
• Relationship shifts: Fewer corporate donors, but those that give may give more strategically to exceed thresholds
• Planning horizon: Foundations relying heavily on corporate sponsorships should consider modeling various revenue scenarios for 2026-2028

Estate Tax Exemption Increase

• Permanent increase to $15M (single) or $30M (married) effective January 1, 2026 (see P.L. 119-21, Title IV)
• Indexed for inflation: Exemption amounts may increase annually, starting with 2027 adjustments
• Estimated less than 0.1% of estates may face federal estate tax
• Strategic considerations: Donor communications may need to shift from tax avoidance to impact and legacy messaging
• Lifetime giving considerations: For most donors, lifetime charitable gifts may now provide more tax benefit than estate bequests

Potential Bequest Planning Considerations:

With estate tax motivation potentially eliminated for all but the wealthiest 0.1%, foundations may wish to consider reframing planned giving conversations:

• From: "Reduce your estate tax burden"
• To: "Create lasting impact" and "Build your philanthropic legacy"
• Opportunity to highlight: IRA and retirement account charitable beneficiary designations, which may help avoid income tax on distributions (consult with tax advisors)
• Donor education consideration: Many donors may not realize estate tax no longer applies to them; proactive communication could help prevent lost bequest opportunities

II. Direct Institutional Costs: Excise Taxes That May Function as Portfolio Drags

Two OBBBA provisions may directly increase costs for certain institutional nonprofits, potentially reducing net investment returns.

Executive Compensation Excise Tax Expansion

Before OBBBA:

• 21% excise tax on compensation over $1M for top 5 employees only

After OBBBA (effective January 1, 2026):

The Act expands the 21% excise tax under IRC §4960 by broadening which payments and payees are covered. In practice this means the excise tax can apply to remuneration and certain parachute payments in excess of $1,000,000 for current employees and, in specified circumstances, certain former employees. The statute and implementing guidance also establish specific definitional rules and exclusions (for example, certain medical practitioner compensation). Consult counsel for an exposure analysis. (See P.L. 119-21 text and IRS implementing guidance; practitioner commentary available from CLA, Warren Averett, and others)

Who This May Affect:

• Large healthcare systems
• Universities
• Foundations with highly compensated investment staff or executives

Tiered Endowment Tax for Educational Institutions

The statute creates a tiered excise tax on net investment income that applies to applicable educational institutions meeting statutory tests (including student-count and student-adjusted endowment calculations). Rates are tiered (low → mid → high), but applicability depends on statutory thresholds and detailed calculation rules in the law and Treasury guidance. Institutions should run a statutory eligibility test with tax counsel before assuming exposure. (See P.L. 119-21 text; practitioner notes from Troutman, CLA, Warren Averett, and others)

Illustrative Tax Rate Tiers on Net Investment Income:

Illustrative — see statute for actual calculation rules and eligibility criteria

• $500K-$750K per student: 1.4%
• $750K-$2M per student: 4%
• Over $2M per student: 8%

Strategic Considerations:

• Fundamental spending policy recalibration may be required for affected institutions
• After-tax return optimization could become increasingly critical
• May favor tax-exempt municipal bonds and other tax-advantaged structures, depending on specific circumstances

Note: State colleges and universities remain exempt from this provision

Collectively, these provisions may introduce structural return considerations that could merit explicit modeling in both strategic asset allocation and spending policy calibration. Organizations potentially subject to these taxes should consult with qualified tax and investment advisors to evaluate impacts.

III. Federal Program Reductions and Increased Service Demand

Beyond direct tax provisions, OBBBA includes substantial reductions in federal safety net programs. The Congressional Budget Office projects these changes could significantly increase demand for nonprofit services at a time when contribution patterns may become uncertain.

Scale of Federal Program Changes:

Medicaid

• CBO estimate: Reduction of approximately $911 billion over 10 years (source: CBO cost estimate for H.R. 1, Medicaid provisions scoring)
• CBO projection: Millions of Americans projected to lose coverage over the implementation period (see CBO distributional analysis tables)
• Mechanisms: Work requirements, documentation requirements, reduced allowable state provider taxes, cost-sharing to states
• Timeline: Changes phase in over multiple years, with full implementation by 2027

SNAP (Supplemental Nutrition Assistance Program)

• CBO estimate: Reduction of approximately $186 billion over 10 years (source: CBO cost estimate for H.R. 1, SNAP provisions scoring)
• CBO projection: Approximately 3 million people expected to drop out or lose benefits (see CBO distributional analysis tables)
• Mechanisms: Stricter eligibility requirements, enhanced work requirements, time limits, shift of up to 15% of costs to states

Note on data sources: Federal program spending estimates cited here are drawn from CBO's official scoring of H.R. 1 (One Big Beautiful Bill Act). For the most current and detailed breakdowns, consult CBO.gov for published cost estimates and distributional tables. Additional analysis available from Kaiser Family Foundation and other policy research organizations.

Student Loans

• Major overhaul of federal student loan programs
• Elimination of Grad PLUS loans
• Less generous repayment plans
• Forgiveness now after 30 years (previously 20-25 years)
• Total lifetime payment pause limited to 12 months

Potential Direct Implications for Nonprofits

Organizations serving vulnerable populations may face a dual pressure scenario:

Investment Committee Considerations:

The combination of potentially increased service demand and uncertain contribution patterns may merit sophisticated scenario modeling:

• Liquidity stress testing: Model scenarios where service demand increases while contributions shift in 2026-2027
• Spending policy flexibility: Consider frameworks for potential temporary deviations from traditional spending rules during surge periods
• Reserve deployment strategy: Evaluate appropriate potential use of reserves for mission-critical capacity expansion
• UPMIFA prudence analysis: Consider updating documentation to reflect consideration of demand variables alongside traditional endowment factors
• Multi-year planning: Federal program reductions phase in gradually; investment committees may wish to revisit assumptions annually through 2028

Suggested Action Items:

1. Work with program staff to assess service population overlap with affected federal programs
2. Model potential reserve utilization scenarios for 2026-2028 service patterns
3. Consider establishing designated emergency response funds
4. Review spending policy documentation to address potential mission-critical exceptions

III-A. Governance Context: Provisions Removed from Final Legislation

While the final OBBBA significantly impacts philanthropic organizations, board members and investment committees should understand that several more onerous provisions were removed during the legislative process, demonstrating the effectiveness of nonprofit sector advocacy.

Provisions Successfully Eliminated:

1. Section 501(p) "Terrorist-Supporting Organization" Provision

• What it would have done: Granted Treasury Secretary authority to revoke tax-exempt status of organizations deemed to support terrorist groups, with limited due process
• Why it was removed: Over 2,300 nonprofit organizations and advocacy groups opposed the provision, citing due process concerns and potential for politically-motivated targeting
• Current status: Not included in final law, but may resurface in future legislation

2. UBIT Expansion on Name and Logo Royalties

• What it would have done: Treated royalty income from licensing organizational names/logos as unrelated business taxable income
• Impact if passed: Would have significantly reduced net revenue from licensing agreements
• Status: Removed from final bill

3. UBIT on Parking and Transportation Benefits

• What it would have done: Reinstated the controversial "parking tax" requiring nonprofits to pay UBIT on employee parking and transit benefits
• Why it mattered: Urban nonprofits faced significant administrative costs calculating the tax (often exceeding the tax itself)
• Status: Not included; had been retroactively repealed in 2019 after bipartisan opposition

4. More Aggressive Private Foundation Excise Tax Increases

• What was proposed: Tiered excise tax on private foundation investment income reaching 10% at highest levels
• Estimated impact: $2.9 billion in annual additional taxes on largest foundations
• Status: Not included in final legislation

Governance Implications:

The removal of these provisions demonstrates three critical points:

1. Advocacy matters: Coordinated nonprofit sector engagement successfully prevented more damaging outcomes
2. Vigilance required: Removed provisions may return in future legislation; organizations should maintain robust compliance and due diligence programs
3. Relative positioning: While OBBBA creates challenges, the final legislation is substantially more favorable than early drafts suggested

Investment committee action: Document review of governance, compliance, and due diligence procedures in board minutes. Ensure gift acceptance policies, international partnerships, and licensing agreements meet high standards that would withstand heightened scrutiny.

IV. Investment Strategy Implications: Portfolio Construction in the New Environment

A. Liquidity Management and Distribution Planning

The potential 2025 year-end giving surge, anticipated 2026-2027 contribution volatility, and uncertain demand pressures may merit robust scenario planning.

Considerations for Enhanced Liquidity Approach:

• Organizations may wish to consider maintaining 12-18 months of operating expenses in liquid reserves (versus traditional 6-12 months), depending on risk tolerance and specific circumstances
• Potential rebalancing toward predictable income generation:
  • Investment-grade corporate and municipal bonds
  • Dividend-focused equity strategies
  • Private credit or structured income where appropriate and consistent with investment policy
• Consider developing contingency distribution plans with specific triggers for evaluating spending rate adjustments

B. Tax-Efficient Portfolio Construction

For organizations potentially subject to excise taxes on investment income, after-tax return optimization may become increasingly important.

Potential Tax-Advantaged Strategies to Consider:

• Municipal bonds: Tax-exempt income may help avoid excise tax exposure, depending on specific circumstances
• Opportunity Zone investments: May provide favorable tax treatment, subject to eligibility and risk considerations
• Master limited partnerships: Certain structures may offer beneficial treatment, though individual circumstances vary
• Private equity and venture capital: Realized gains typically only upon exit, potentially allowing tax-timing flexibility

Manager Selection Considerations:

Investment committees may wish to evaluate:

• After-tax returns (not just pre-tax performance) for organizations subject to excise taxes
• Tax-loss harvesting capabilities where applicable
• Capital gains realization management approaches

Note: The suitability of any tax-advantaged strategy depends on your organization's specific circumstances, risk tolerance, and investment policy. Consult with qualified investment and tax advisors.

C. Non-Cash Gift Infrastructure and Illiquid Asset Management

With potentially reduced tax benefits for cash donations among high-income donors, appreciated securities and complex assets may become preferred giving vehicles. The combination of the 0.5% AGI floor and 35% deduction cap may make appreciated stock gifts relatively more attractive.

Potential Donor Behavior Changes:

• Cash giving: 2026 deduction at 35%, subject to 0.5% AGI floor
• Appreciated securities: Full FMV deduction at 35%, no AGI floor, plus avoidance of capital gains tax
• Result: Non-cash gifts may become even more tax-efficient for high-income donors relative to cash contributions

Investment Committee Implications:

• Organizations may see an increase in gifts of:
  • Publicly traded securities
  • Private company stock (requiring valuation and liquidity planning)
  • Real estate
  • Cryptocurrency and digital assets
  • Partnership interests and S-corp stock
• Organizations should consider:
  • Gift acceptance policies that address complex asset types and associated risks
  • Relationship with investment banking or advisory firms capable of handling illiquid asset valuation and liquidation
  • Legal counsel versed in non-cash gift structures and UBIT considerations
  • Infrastructure for rapid decision-making when time-sensitive complex gifts arise

D. Key Portfolio Priorities for 2026

V. The Together Forward Capital Advantage: Integrated Advisory for Institutional Investors

Most investment advisors can help you understand the OBBBA's provisions. Together Forward Capital aims to help you understand how those provisions may fundamentally reshape your capital structure, distribution strategy, and mission sustainability.

Our Distinctive Three-Part Platform

1. Traditional Investment Advisory Services

• Comprehensive asset allocation and manager selection
• Performance monitoring and rebalancing
• Cash flow modeling and spending policy optimization
• UPMIFA compliance support and investment policy statement development

2. Investment Banking Capabilities

• Structuring and valuation of complex non-cash gifts
• Access to pre-IPO companies and late-stage private market opportunities
• Dealflow from entrepreneurs, family offices, and institutional partners
• Secondary market transactions for illiquid assets

3. Specialized Philanthropic Sector Expertise

• Deep understanding of foundation and endowment governance
• Knowledge of nonprofit accounting, tax-exemption, and regulatory requirements
• Network for peer benchmarking and best practice sharing

This integration of advisory, banking, and philanthropic insight creates a continuum of service that may be unavailable in traditional investment advisory models.

VI. The 2025 Year-End Planning Imperative

The window for donors to potentially capture the full 37% deduction on major gifts closes December 31, 2025.

Potential Action Items to Consider

VII. Conclusion: From Compliance to Strategy

The OBBBA represents a potentially significant restructuring of how philanthropy operates in America. Donor incentives may have shifted. Institutional costs may have increased for many organizations. Service demands are projected to potentially rise significantly. Estate planning motivations may have changed.

For investment committees and foundation boards managing $10 million or more in assets, this moment may merit sophisticated financial analysis, not just fundraising recalibration. The organizations that may be best positioned to thrive are those that view OBBBA as a strategic planning opportunity: to potentially optimize portfolio construction for after-tax returns, to build infrastructure for complex gift acceptance, to model multiple future scenarios, and to consider whether their investment approach aligns with a potentially transformed operating environment.

Together Forward Capital exists at the intersection of investment advisory, investment banking, and philanthropic sector expertise. Our exclusive focus on foundations, endowments, and nonprofit organizations means we understand both the regulatory nuances and the mission-critical imperatives that drive institutional decision-making.

The OBBBA's full impacts may unfold over years, but the strategic decisions you consider in the coming months could influence your organization's capacity to serve your mission for decades.

The views expressed in this article represent our assessment of the One Big Beautiful Bill Act based on current information and understanding of the legislation. Tax laws are subject to interpretation and their application depends on specific circumstances. This article should not be used as the sole basis for financial or legal decisions. We encourage all organizations to consult with qualified tax, legal, and investment advisors regarding their specific situations.