The special charitable tax deduction that allowed single non-itemizers to deduct up to $300 and married couples filing jointly to deduct $600 in cash donations to qualifying charities for tax years 2020 and 2021 has expired. Many are wondering what is next in terms of tax incentives for charitable giving on the federal level.
Philanthropy Roundtable’s Vice President of Policy and Government Affairs Elizabeth McGuigan recently joined a webinar hosted by Jon Hannah of the Center for Civil Society (CCS), a project of American Philanthropic, to discuss the future of the charitable tax deduction and what it means for those who give.
As part of the discussion of these policy changes, McGuigan and Howard Husock, senior fellow in domestic policy studies at American Enterprise Institute, discussed the proposed bipartisan Charitable Act sponsored by Senators James Lankford (R-OK) and Chris Coons (D-DE). This bill would not only bring back the now expired non-itemized deduction for charitable giving but would also expand it to encourage more charitable giving.
Specifically, taxpayers who take the standard deduction but give to charity could get an additional deduction of up to around $4,500 for an individual filer and $9,000 for married joint filers. For the tax year 2023, the standard deductions are $13,850 for individual filers and those married filing separately and $27,700 for married joint filers.
If enacted, the Charitable Act would exponentially increase the threshold of the expired special charitable deduction from $300 to $4,500 for single filers and $600 to $9,000 for married joint filers, a considerable incentive for taxpayers to engage in charitable giving.
“The higher threshold here really is important,” said McGuigan. “Data from the Fundraising Effectiveness Project found a nearly 30% increase in $300 gifts in response to the earlier $300 deduction. So raising the value of the deduction really can be expected to drive behavior toward an increase in giving amounts.”
McGuigan addressed critics of the deduction and discussed the potential fall out if charitable deductions were abolished completely.
“We all want to see more money going to charities and the communities and causes that they serve. Ending the charitable deduction would send us down the opposite path,” said McGuigan. “We hear from voices on both the left and the right as they’re arguing that philanthropy is a ‘hobby’ of the wealthy … and some of this indicates we see a growing desire to use the government to silence the givers that they disagree with.”
McGuigan continued later in the conversation, “What these critics miss is that the charitable tax deduction is at its core an acknowledgment that when somebody gives away income you can no longer consume it for personal use, so you shouldn’t be taxed on it.”
To watch their full conversation from the Givers, Doers, and Thinkers webinar click here.
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