Charitable Deduction Benefit Declines in Proposed Tax Plan

The House Ways and Means Committee have released its first bill of the “Tax Cuts and Jobs Act.” The 429 page proposed bill is the first look at the committee’s proposed tax changes. There is still a long road until there is an actual bill passed by Congress. The bill still requires a vote in the House. The Senate then will attempt to pass a similar bill. Once both bills are passed, it will need to go through a process known as reconciliation where the House and Senate create a joint bill that will go to the President’s desk for signature.

While we still may be a ways out of a final bill, PBMares will keep everyone in the non-for-profit world on any changes that will affect them every step of the process.

The proposed rules will increase the standard deduction to $24,400 for married couples filing jointly and to $12,200 for taxpayers filing single. This increase in the standard deduction along with proposed revocations of many itemized deductions, such as the state and local income tax deduction, will decrease the number of people who need to itemize. If less people itemize, then less people will receive a tax incentive for their charitable deductions.

On the other hand, two proposals may increase tax incentives for those who can itemize. The first proposal raises the limit on deductible cash contributions from 50 percent of a taxpayer’s adjusted gross income to 60 percent of the taxpayer’s adjusted gross income. This increase will allow for more tax incentives on larger cash donations from people who itemize.

The other proposal is the elimination of the Pease limitation. This limited the total amount of itemized deductions that are deductible by an individual. Hypothetically, with no limit on itemized deductions, individuals will be able to donate more to charitable organizations since nothing is limiting their itemized deductions. However, this point is countered by a 2013 research paper by the Center on Budget and Policy Priorities which found that the implementation of Pease would not discourage charitable giving.