Any day now, Americans preparing their Forms 1040 are going to either learn or come face to face with a certain cold truth: their charitable deductions do them no good, tax-wise. (Unless they’re super rich, that is, but the super-rich don’t even prepare their own 1040s; their accountants will figure out the value of their gifts to nonprofit organizations.)
It’s not that the charitable deduction is gone. The reason for this change is the doubling of the standard deduction that was included in the 2018 overhaul of the U.S. Tax Code (the Tax Cuts and Jobs Act, or TCJA). It’s now set at $12,000 for people filing as singles and $24,000 for married couples filing jointly.
At that level, the vast majority of U.S. taxpayers have no reason to itemize their deductions. And charitable donations are an itemized deduction. No itemization, no sense tallying up one’s gifts to charity.
The impact this might have on nonprofits across the U.S. (and beyond) is severe; an estimated $17.2 billion reduction in charitable giving, predicts the conservative American Enterprise Institute (AEI).
In light of how many Americans rely on nonprofits for everything from survival to cultural enrichment—on hospitals, food banks, friends of the library associations, suicide prevention hotlines, museums, arts organizations,and more—couldn’t Congress have done something to incentivize charitable giving? It could have, but it didn’t.
A proposal on the table when the TCJA was being drafted was to include what was dubbed the “universal charitable deduction.” The idea, brought forth by the nonprofit sector, was a simple one. Charitable deductions could be taken by all taxpayers, whether or not they chose to itemize.
Congress didn’t bother to include the universal deduction, however. But its very simplicity means it could be added as a later fix, even without another tax code overhaul—if, that is, there’s enough public pressure. Will there be?