Universal Charitable Deduction Could Reduce Taxes, Boost Giving

Itemizing your charitable giving on your tax return has always been a great incentive to give — along with the warm feeling of supporting good causes.

However, tax reform proposals by Republican lawmakers and the Trump administration that would increase the standard deduction for individuals and families may take away that incentive. After all, it’s easier to take a nice standard deduction than to spend time — or pay someone to — track and itemize deductible expenses. Estimates in a new study report a potential $5 billion to $13 billion hit to annual giving, with religious organizations feeling the burn most.

The study’s solution? Make the charitable deduction universal whether you itemize or not. A universal standard deduction for charitable giving would be a bonus on top of an increased standard deduction. It was also shown to have a minimal effect on federal tax revenues.

The study, according to The NonProfit Times, used data from “the University of Michigan’s Study of Income Dynamics, the Philanthropy Panel Study created by the Lilly School, and the 2009 Internal Revenue Service (IRS) Statistics of Income Public Use File. The paper expands upon an Urban-Brookings Tax Policy Center study in October by examining the expansion of the charitable deduction to non-itemizers as an addition to the current proposals to increase the standard deduction and decrease the top marginal tax rate.”

The study concluded that a standard charitable deduction for all taxpayers would erase the potential drop in donations, and in fact raise overall giving by $1.1 billion.

That’s good news for charities, many of which have struggled since the recession to encourage an increase in giving levels. Right now, taxpayers who itemize are far more likely to donate to charity; high-income taxpayers are much more likely to itemize to reduce their tax impact.

It remains to be seen which tax reform proposal will win out in the Senate. Regardless, it is important to take every advantage to manage your tax impact when the environment is uncertain. Sometimes charitable giving and gifting is the answer. For businesses, it’s important to look at timing of business purchases or to employ loss carrybacks.

Talk to the tax team at LvHJ to consider if you may be missing important tax incentives, deductions or gifting options in your personal or business tax plan. We also have years of expertise representing not-for-profit and charitable organizations on their tax planning and entity structures. That includes training for your staff.

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