Since 2017, nonprofits have seen a reduction in the amount of money coming in and that is partially because of the Tax Cuts and Jobs Act of 2017. Economists loved the idea of doubling the standard deduction but were concerned that reform could reduce charitable giving because less people would itemize and deduct donations.
And they were right.
Only 10% of taxpayers now itemize and that’s down 20% from 2017. Due to this decrease, there is a push for change that would allow taking the standard deduction AND itemizing charitable donations.
100 Years of Charitable Deductions
In 1917, lawmakers worried that the new Federal Income Tax rates at 67% would keep philanthropists from giving. Congress passed the first charitable deduction bill that has gone through many changes over the past 100+ years. Many economists argue there shouldn’t be these kinds of deductions because it costs the federal budget billions of dollars in tax revenue each year and it only benefits taxpayers who itemize instead of taking the standard deduction. Also, economists pointed out the deduction is regressive: the higher your tax bracket, the more you save.
Unfortunately, the Tax Cuts and Jobs Act of 2017 didn’t fix the issue and appears to have made charitable deduction issues even worse. While the tax code became easier, less people could itemize and reach the threshold to claim nonprofit donations. In the end, the deduction has become even more regressive, has limited donations to nonprofits, and hasn’t helped in collecting tax revenue.
Americans gave $15 billion less in 2018 than in 2017.
Congress Pushing Change in Charitable Deduction Rules
There are two charitable deduction reform proposals. One of them is from Utah Senator Mike Lee. His reform would be simple: make the deduction available to those who take the standard deduction. This would allow taxpayers to submit donations, get the deductions from them, and then claim the standard deduction.
The other proposal from several economists would give charitable tax credits to anyone who donates any amount to any charities. Regardless if you take the standard deduction or itemize, you would get a credit for your charitable contribution.
Tax laws are always changing and they can always affect your nonprofit. We are focused solely on nonprofit accounting and can help you maneuver your organization through these changes.