Year-end tax planning and the EFTC: which December matters

The effective date, in the statute’s words

A donor recently asked us a question we expect to hear all autumn: “What do I need to do before December?” The honest answer for 2026 is: probably nothing, and possibly the opposite of what year-end instinct tells you. The reason sits in one sentence of the enacting law. Section 70411(c) of the One Big Beautiful Bill Act provides that the §25F amendments “shall apply to taxable years ending after December 31, 2026”. For a calendar-year taxpayer, the first taxable year that ends after December 31, 2026 is 2027. And because §25F(a) credits “qualified contributions made by the taxpayer during the taxable year,” the first contributions that can generate the credit are those made on or after January 1, 2027.

That single date rearranges the usual year-end playbook. Charitable planning normally pushes gifts earlier, into December, to capture a deduction in the current year. For this credit, in this one transition year, the smart move runs the other way. Our timeline of key dates walks the full rollout; this article is about what the calendar means for your giving.

The December 2026 trap

Here is the trap in concrete terms. Suppose you write a $1,700 check to a Scholarship Granting Organization on December 20, 2026, expecting the federal credit you have been reading about. You get nothing under §25F. Not a reduced credit, not a credit claimed later: nothing, because the section does not apply to your 2026 taxable year at all. The same $1,700, given on January 5, 2027 to a qualifying SGO in a covered state, comes back to you dollar-for-dollar on your 2027 return, up to the $1,700 per-taxpayer cap.

One first-year caveat about January itself. Under the temporary regulations Treasury issued October 1, 2026, states have until February 15, 2027 to submit their 2027 SGO lists, and the IRS builds its national IRS SGO list from those submissions. Treasury’s proposed regulations let you rely on an organization being on the IRS SGO list at the time you give; a gift made before your SGO appears there does not get that protection. So if the credit is the point, check the list before you give. If your SGO is not on it yet, waiting a few more weeks costs nothing, because any gift made during 2027 counts toward the 2027 credit.

Expect some confusion in the wild here. SGOs will be fundraising through late 2026 to build their launch pipelines, and year-end appeal season will land right on top of the credit’s publicity. Both things can be true: the organizations genuinely need 2026 money to stand up operations, and a 2026 gift genuinely earns no federal credit. A well-run SGO will say so plainly in its December appeal.

What a 2026 gift is still worth

None of this makes a December 2026 gift foolish. It just makes it a regular charitable gift, and regular charitable gifts still carry their regular tax treatment:

• The §170 deduction. A 2026 contribution to an SGO (a 501(c)(3) public charity) is deductible if you itemize. If you take the standard deduction, the 2025 law’s new non-itemizer deduction, which starts with 2026, allows up to $1,000 of cash gifts to public charities, or $2,000 on a joint return. Since §25F does not apply to 2026, the no-double-benefit rule does not bite; the deduction is simply the only federal benefit available.
• State scholarship credits, where they exist. A number of states have run their own scholarship tax credit programs for years, some worth far more per donor than $1,700, and those state programs reward 2026 gifts on their own schedules and caps. If you live in a state with such a program, a December 2026 gift can still be excellent tax planning at the state level. See how the federal credit compares to state programs for that landscape.
• The mission itself. Scholarship funds awarded for the 2026-27 school year come from money raised now, not from 2027 credited donations.

One forward-looking wrinkle for donors in state-credit states: once §25F is live, §25F(b)(2) reduces the federal credit by any amount allowed as a credit on your state return for the same contributions. Treasury’s proposed rules subtract the state credit from the gift before the $1,700 cap applies, so a large enough gift can still earn the full federal credit: in Treasury’s illustration, a $2,500 gift that earns a $500 state credit leaves $2,000, enough for the full $1,700 federal credit, or $2,200 back in all. The combined benefit never exceeds the gift itself, and a state credit you carry to a later year is treated as allowed in the year of the gift, so it still reduces that year’s federal credit. In 2026 there is no interaction to worry about, because there is no federal credit to reduce.

Once the credit is live: December 31 is real

The transition-year advice inverts the moment the calendar turns. From 2027 forward, year-end works the way donors expect it to. §25F(a) allows the credit for contributions made during the taxable year, so a calendar-year taxpayer who wants the credit on the 2027 return must make the gift by December 31, 2027. Give on January 3, 2028 and the credit belongs to tax year 2028 instead: not lost, but a year deferred, which matters if you were counting on it against a particular year’s liability.

Treasury’s October 2026 regulations do not address when a late-December gift counts as “made,” questions like a check mailed December 30 or a card charged on New Year’s Eve. Since a qualified contribution is defined as a charitable contribution of cash, the sensible expectation is that ordinary charitable-contribution timing principles will govern, but that is an expectation, not settled guidance. The practical planning answer does not depend on it: do not run a four-figure credit up against the last 48 hours of the year. Give in early or mid-December, get the acknowledgment in hand, and leave the edge cases to people who enjoy them.

Cash only, and what that does to December habits

Year-end giving has a signature move: donate appreciated stock, skip the capital gain, deduct the full value. That move does not work for this credit. §25F(c)(3) defines a qualified contribution as “a charitable contribution of cash to a scholarship granting organization,” and cash means cash. Treasury’s temporary regulations define it as currency, check, money order, electronic transfer (including credit and debit cards), after-tax payroll deduction, or a similar method, in U.S. dollars, and expressly not any digital asset. Securities, cryptocurrency, real estate, donated services, none of it generates a §25F credit, however it is timed. (Earlier drafts of the bill allowed stock; the enacted law does not, and older articles describing stock donations are describing a bill that never became law.)

Two more rules shape the December check. First, a gift counts only to the extent you designate it to the SGO, at the time you give, as a §25F qualified contribution. The designation cannot be undone, and you can designate part of a gift and leave the rest as ordinary giving. A check dropped in a year-end appeal envelope with no designation is just a charitable gift. Second, give personally. Under the proposed regulations, your share of a gift made by your partnership or S corporation is not a qualified contribution, even if it is deductible, so a business owner’s year-end gift through the company earns no credit.

For a donor who does both kinds of giving, the clean December playbook from 2027 on is a split: cash to the SGO for the credit, up to $1,700, and appreciated securities to your other charities (or to the SGO as a regular §170 gift) for deduction planning. The two strategies coexist fine; they just cannot occupy the same dollars.

One dollar, one benefit

§25F(e) closes the double-dip directly: any qualified contribution for which the credit is allowed “shall not be taken into account as a charitable contribution for purposes of section 170.” Each dollar gets one treatment. The choice is not close: a credit returns the whole dollar, a deduction returns your marginal rate on it, so the credit wins for the first $1,700 at any bracket. Dollars above the cap revert to ordinary charitable treatment. In Treasury’s own example, a $2,000 designated gift produces a $1,700 credit and the other $300 may be deductible under §170 if you itemize (or, if you don’t, within the capped non-itemizer deduction); by the same arithmetic, a $3,000 cash gift in 2027 can produce a $1,700 credit plus a $1,300 deduction.

Married couples filing jointly can plan around $3,400 on a joint return when each spouse makes and designates their own gift. The statute caps the credit at $1,700 “to any taxpayer,” and Treasury’s proposed regulations, released October 1, 2026, treat each spouse as a separate taxpayer for that cap. The rules are proposed, not final, but Treasury says taxpayers may rely on them for 2027 contributions. The donor guide covers the joint-filer question and worked examples in detail. The year-end plan for a couple is a $1,700 credited gift from each spouse, with anything beyond that treated as ordinary giving. Make them two gifts, each designated by the spouse giving it, as in Treasury’s example: the proposal does not say how one check from a joint account would be split between spouses. The couple’s combined credit is still limited by their combined tax bill.

If the credit exceeds your tax bill

The credit is non-refundable: it can take your federal income tax to zero but not below. Year-end planners sometimes treat non-refundable credits as use-it-or-lose-it and try to fine-tune December giving to match projected liability. §25F makes that unnecessary. Under §25F(f), any excess credit carries forward to the succeeding year, for up to five taxable years after the year the credit arose, with credits used on a first-in first-out basis.

So a retiree with $1,200 of 2027 liability who gives $1,700 in December 2027 loses nothing: $1,200 offsets 2027, and $500 rides into 2028. The carryforward removes the one good excuse for December liability-matching gymnastics. Give the amount you intend to give; the credit finds your liability over the following five years.

The paperwork to keep

Three records matter. The first is yours; the other two come from the SGO after the year closes:

• Your own record of the gift and its designation: the canceled check, card or bank statement, or payroll record, and the gift form or confirmation showing you designated the gift as a §25F contribution when you made it. For a late-December gift, this is your evidence of which year the contribution belongs to.
• The SGO’s written acknowledgment, due by January 31 of the following year (so January 31, 2028 for 2027 gifts). Under Treasury’s temporary regulations it shows the SGO’s EIN, your total designated §25F contributions for the year, whether you received any goods or services (and their value, which comes off your qualified contribution), and your unique donor number. It can arrive electronically if you agree to that.
• Your unique donor number, printed on that acknowledgment. The SGO reports your name, address, and annual total to the IRS under the number by February 28, and you report the same number on Form 8525, so the IRS can match your claimed credit without you ever giving the SGO a Social Security number. Each SGO issues its own number, so two SGOs means two numbers. Under the proposed regulations, leaving a number off Form 8525 creates a presumption that you made no qualified contribution to that SGO, which the acknowledgment can rebut. The full mechanics are in our donor-number explainer.

Keep all of it with your return records for at least three years, the standard IRS audit window. The proposed regulations name the claim form, Form 8525, Federal Scholarship Tax Credit, but the IRS has not yet released the form or its instructions; the acknowledgment and donor number are what you will need to fill it in.

A planning checklist by calendar

Fall 2026

• Pick your SGO, but hold the credited gift. Confirm the organization expects to be on a covered state’s list for 2027. Broad participation makes this easier than it sounds: the IRS’s official roster shows 30 states with completed advance elections, the same 30 our participation map counts (New York has announced it will participate but has not yet filed, and the roster grows as each state files). You are not limited to your own state: under the proposed regulations you can give to an SGO on any covered state’s list, wherever you live. Our SGO directory is a place to start looking.
• If your state runs its own scholarship credit, decide whether a 2026 gift makes sense under the state program on its own merits.

December 2026

• Do not give for the federal credit. If you give anyway, for the mission, for a state credit, for a deduction, do it knowing §25F pays nothing for it.
• If you itemize, a 2026 gift is a normal §170 deduction; if you don’t, up to $1,000 of cash gifts to public charities, or $2,000 on a joint return is deductible starting with 2026. Either way, keep the acknowledgment.

January and February 2027

• Make the credited gift: cash, to an SGO on the IRS SGO list, designated as a §25F contribution when you give. January 1 is the earliest date the credit exists, and an early-year gift puts twelve months between you and any timing question. State lists for 2027 are due by February 15, 2027, so if your SGO is not on the IRS SGO list yet, wait until it is.
• File your payment record and designation with your tax records. The SGO’s acknowledgment with your donor number follows by January 31, 2028.

Through 2027

• Track the cap: $1,700 per taxpayer for the year, so up to $3,400 for a married couple filing jointly when each spouse makes and designates their own gift (under Treasury’s proposed rules).
• Route appreciated-stock giving to §170 treatment; it cannot earn the credit.

December 2027, and every December after

• Complete any remaining credited giving by December 31, comfortably before the deadline, not on it.
• Do not trim the gift to your projected liability; the five-year carryforward absorbs any excess.
• Claim the credit on that year’s return the following spring, on Form 8525 with each SGO’s donor number, starting with the 2027 return filed in early 2028, or adjust your withholding to take the benefit in your paychecks during the year instead of waiting for the refund.

Frequently asked questions