By Charitable Advisors staff
At this time of year, we are reminded that Americans are generous people. Last month, for example, an estimated $274 million was raised online during the sixth annual Giving Tuesday event. And much of that total will be written off on people’s taxes.
By the end of this week, Congress is expected to approve changes to the U.S. tax code, and it’s important for nonprofits to understand their potential effects. Dissecting what we know about the pending bill can help put it in perspective.
The details of the fast-moving tax code rewrite released on Friday indicate that the standard deduction will temporarily be increased from $6,350 to $12,000 for single taxpayers and from $12,700 to $24,000 for married couples filing jointly. In 2025, those deductions will revert to the current law.
One consequence of roughly doubling the standard deduction would be to significantly lower the number of filers who itemize. Currently, only taxpayers who itemize can deduct charitable contributions.
This change has the potential to affect middle-income families, according to Una Osili, professor of economics and associate dean for research and international programs at the Indiana University Lilly Family School of Philanthropy. She estimates roughly 30 million households making between $50,000 and $100,000 will be less likely to itemize their deductions on their taxes.
According to IRS data, over 500,000 donors in Indiana claimed the charitable deduction, accounting for $3.2 billion in donations. But without seeing a direct link between their contributions and their bottom-line tax obligations, fewer potential donors are expected to open their wallets.
Research by the Lilly School shows that itemizers are much more likely to donate to charitable causes. A recent report showed that 83 percent of itemizers reported donating any amount of charitable giving at all, compared to 44 percent of non-itemizers. And non- itemizers contribute less than 20 percent of total giving. Lilly’s Osili predicts at least a $13 billion annual drop in charitable giving if the new standard deduction becomes law.
One remedy this fall was a universal charitable deduction introduced by U.S. Rep. Mark Walker (R-N.C.) that would have incentivized charitable giving for low and middle income earning individuals and families. The Universal Charitable Giving Act (H.R.3988) would have established a universal charitable deduction for individuals and married couples who did not itemize, and be in addition to the standard deduction.
According to Marissa Manlove, president and CEO of the Indiana Philanthropy Alliance, it is disappointing that it was not considered.
“This solution would have allowed taxpayers at all income levels to take advantage of the 100-year-old charitable deduction. Without such an incentive, I fear charitable giving could decrease dramatically, placing underserved Hoosiers at greater risk. I encourage our nonprofit sector to monitor the effect tax reform has on their organization and to share stories of people affected with their policymakers,” she said.