Tax Reform and the Charitable Tax Deduction?

The nonprofit sector is an important part of strong, thriving communities. The Charitable tax deduction is part of nonprofit organizations ability to be successful in its unique role; distinct from, and frequently in partnership with government and for-profits. 

The charitable deduction has been in place since 1917, providing a tax deduction for community members who contribute to nonprofit organization. It is available to any taxpayer who itemizes on their tax return.

At the federal level, there has been a lot of excitement and enthusiasm about tax reform these few weeks. Importantly, the proposals that have surfaced, could have a detrimental impact on charitable giving because of the impact on the charitable deduction.

It is not yet clear what the president's's tax reform proposal will include, though in the past the administration has called for a cap on the amount of itemized deductions that can be claimed.

On the other hand, the Republican House blueprint provides specifics. It calls for dramatically increasing the standard deduction. Doing so would reduce the number of filers who itemize their deductions (and therefore receive the full value of the charitable deduction).

This would reduce the number of itemizers from currently over 30 percent of filers to only 5 percent of filers with the highest incomes. We know that many people will still make donations to 501(c)(3)s or religious organizations of their choice, various estimates predict charitable giving nationwide could be reduced by more than 10 percent. That's a loss of more than $25 billion annually.

 This proposed blueprint, combined with a cap on itemized deductions, would be especially devastating.

The harm to the charitable giving seems to be unintentional. Discussions with congressional delegates suggest it is an "unintended consequence."

And congressional leaders need to understand the unintended consequences of what they are discussing. There is substantial evidence showing that the amount people give is directly influenced by the economic incentives created in the tax code. When the value of the incentive is reduced, so are gifts to nonprofit organizations.

This year is the 100th year of tax code status for the charitable deduction. Let's make sure we don't go backwards. In fact, our goal is to extend the charitable deduction to all taxpayers, regardless of their itemizer status.

Help protect the charitable deduction that supports your mission by contacting your Senators and Representatives. Tell them about your organization, its values and mission, and how important it is to have this giving incentive. Encourage them to extend the charitable deduction to all taxpayers, so that those who take the standard deduction have equal access to this opportunity to invest in their community.