By Laura Kalick
Nonprofit organizations have had a “universal” charitable deduction—which would allow all taxpayers the opportunity to take the deduction—on their wish list for quite a while. Although this provision did not make it into the final text of the bill known as the Tax Cuts and Jobs Act of 2017 (the Tax Act), there still may be hope. On May 11, Rep. Chris Smith (R-NJ) introduced H.R. 5771, the Charitable Giving Tax Deduction Act, in the House of Representatives. Rep. Henry Cuellar (D-TX) is the original co-sponsor. This bipartisan bill provides for an “above-the-line” income tax deduction for charitable contributions. The bill does not provide for a cap on the deduction. If the bill becomes law, it would apply to tax years beginning after Dec. 31, 2017, so that if passed, contributions made in 2018 would be deductible under the provision.
The Tax Act increased the standard deduction and limited the state and local tax deductions. As a result, fewer people will likely itemize their deductions on their 2018 returns. In addition, the estate and gift tax exclusions also doubled, which lessens the incentive to make bequests to charities. The Tax Act did, however, increase the tax incentives for high net-worth individuals by raising the annual limit of cash donations to public charities from 50 percent of a person’s adjusted gross income (AGI) to 60 percent, and repealed the “Pease” limitation, which reduced the amount of the allowable itemized deductions (including charitable contributions) once a taxpayer’s AGI reached a certain amount. The elimination of the Pease limitations went into effect on Jan. 1, 2018, and sunsets in 2025. Despite these giving incentives, it was estimated by the Tax Policy Center that the law could lead to an estimated $12 to $20 billion decline in overall charitable giving.
If an above the line charitable contribution deduction is enacted, an Indiana University Lilly Family School of Philanthropy study commissioned by the Independent Sector shows that this type of universal charitable deduction would increase charitable giving by approximately $18 billion.
It has yet to be seen how many representatives will sign on as co-sponsors of the bill and if a similar bill will be introduced in the Senate. Also, it is not known at this point what the revenue loss would be if the Charitable Giving Tax Deduction Act becomes law. However, nonprofits are excited by this latest development. If the bill becomes law, the government would codify an incentive to increase the motivation for people to give, and would send an important message about the importance of charitable sector.
This article originally appeared in BDO USA, LLP’s “Nonprofit Standard” newsletter (May, 2018). Copyright© 2018 BDO USA, LLP. All rights reserved. www.bdo.com