The 2017 Tax Cuts and Jobs Act created sweeping tax changes, including increasing the standard deduction and eliminating or capping many itemized deductions. Unfortunately, the unintended consequence was that fewer Americans itemized their taxes, and therefore, fewer donors were able to take an itemized charitable deduction (this number decreased by more than half in 2018).
In 2020 and 2021 only, the CARES Act reversed this phenomenon. Donors who did not itemize greatly appreciated the small, temporary, above-the-line deduction for charitable gifts of cash—$300 for single filers or $600 maximum for joint filers.
Now, Senators Chris Coons (D-Delaware) and James Lankford (R-Oklahoma), along with a number of other Senators in a bipartisan effort, have introduced the Charitable Act to effectively reintroduce and expand the charitable deduction for non-itemizers and make the measure permanent. They propose keeping the same rules that were in place under the CARES Act but with a much more generous cap—up to one-third of the standard deduction (approximately $4,500 for individuals and $9,000 for married couples filing jointly) instead of the original $300/$600 maximum. However, at least in its current introductory iteration, Head of Households still use the single taxpayer category and only cash donations qualify.
The bill has broad support within the charitable giving community, including the Charitable Giving Coalition, Jewish Federation of North America, Faith & Giving Coalition, National Council of Nonprofits, and numerous notable charities.
“The needs in our communities are far greater than the ability of governments to address alone; the Charitable Act would empower millions more taxpayers to help solve those challenges by donating more to the work of charitable organizations in their communities.”
While the specific provisions of the Charitable Act could change, the bipartisan measure has the potential to fare well. After all, 2020 and 2021 were record years for charitable giving despite the pandemic. While tax benefits are not the only motivating factor for donors, no doubt the lawmakers hope the extension and expansion of these tax benefits will encourage continued growth in charitable contributions.
We’ll follow the progress of this legislation as it moves through Congress. Keep an eye on The Edge for further updates.
