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Will New Bill Make It Easier to Claim Charitable Donations?

Uncategorized  |  14 Jun 2018

By Jon Aldrich

Internal Revenue Code

By now I would imagine most people are somewhat familiar (or maybe vaguely familiar) with the major provisions of the new tax law that took effect in 2017, The Tax Cuts and Jobs Act of 2017, also fondly known as TCJA for those who are fans of acronyms.

One of the major provisions of TCJA was the elimination of the personal exemption and doubling of the standard deduction. This essentially means that a Single person now needs more than $12,000 and those filing jointly more than $24,000 of deductions to be able to itemize deductions on their tax return such as charitable donations, state and local property taxes, interest expense, etc. In 2017 this threshold was $6,350 and $12,700 respectively.  The nonpartisan Tax Policy Center estimates that only about 10% of tax filers in 2018 will be able to itemize deductions, down from about 30% under the old tax laws in 2017.

Plus, the loss of some itemized deductions, such as capping deductible State and Local Taxes @ $10,000, no longer being able to deduct home equity interest and the loss of deductible financial advisor fees, will make it that much harder to itemize as well in addition to the increase in the standard deduction.

What this means is that charitable giving could drop substantially in 2018. Some estimates have put the decrease in charitable giving, because of the loss or reduction of itemized deductions to many taxpayers, will fall by as much as $13 billion to $17 billion depending on who you ask. Many smaller contributors may not be inclined to contribute to charities or may give far less than previously if they feel as they are not getting much tax benefit for doing so.

However, help may be on the way:

Charitable Giving

This bill would essentially allow everyone that files an income tax return and who makes qualified charitable donations to get an “above-the-line” deduction which means you would not have to itemize to get the benefit of a donation. It would just reduce your taxable income. So, even if you gave something small such as $100, you would still receive a benefit for your donation.

This would be fantastic news not only for many charities but also for many taxpayers that no longer can itemize and deduct what they give to organizations they like to support. However, I do see some things that may make getting this bill passed a long shot. One is that the bill does not call for any limit on the amount of deductions in a year. Currently even those that itemize can only deduct up to 60% of their Adjusted Gross Income (AGI) for cash donations and only 30% for gifts of appreciated stock.

This sounds like a great bill not only for charities but also for those that want to give and see a tax break, but I don’t want to get your hopes too high. The bill was introduced on May 10th of this year and has a long way to go to become law. The legislation tracking website, Govtrack gives the bill a 3% chance of becoming law. You can track its progress here:

Bills and Resolutions

But, hey 3% is still a chance. There are a number of people that probably gave the Cubs a .00003% chance to win the World Series in 2016, and we know how that turned out.