Charitable deduction: Hot topics and historical context

Tax issues related to the charitable deduction are hot topics these days as potential tax reforms are circulating in Congress. Included in the discussions, for example, is proposed SECURE Act 2.0 legislation that passed the House of Representatives in March and is now pending in the Senate. Philanthropy advisors are closely watching this legislation, in part because a version of the proposed SECURE Act 2.0 legislation calls for Qualified Charitable Distributions (“QCDs”) to be indexed for inflation. In addition, proposed legislation would allow a taxpayer to make a one-time QCD of up to $50,000 to a charitable remainder trust or other split-interest entity.

In addition to philanthropy-related tax proposals and the variety of pending budget items that could impact tax laws, the uptick in discussion about the charitable deduction in general might be catching your clients’ attention, especially now that there are 1.6 million 501(c)(3) organizations registered with the Internal Revenue Service, according to the Independent Sector. 

For example, a report updated last quarter by the Congressional Research Service, The Charitable Deduction for Individuals, is an excellent overview of the history, policies, and fundamental concepts behind the income tax deduction for contributions made to charities. Just two pages, it’s definitely worth a glance if you are interested in a quick refresher course. You might even find it useful to share with clients.

Notably, the Congressional Research Service’s report estimates annual foregone revenue via the charitable deduction at an estimated $52.4 billion for Fiscal Year 2020, down from an estimated $57 billion for Fiscal Year 2017, just prior to increases to the standard deduction under the Tax Cuts and Jobs Act (“TCJA”).

The TCJA significantly reduced the number of taxpayers who itemize deductions, including deductions for charitable gifts. Indeed, for Fiscal Year 2022, over 80 percent of the total charitable deductions are projected to be associated with taxpayers who earn over $200,000.

If you’re interested in deeper reading, the Joint Committee on Taxation recently released a thorough report summarizing the federal tax treatment of charitable contributions in more detail. And of course, please reach out anytime!

As always, the Community Foundation is here to help you serve your clients by setting up a donor-advised fund, providing guidance regarding their charitable giving plan, discussing strategies to maximize their charitable impact, involving multiple generations in their philanthropy and much, much more. For more information, please contact Alison O’Carroll, director and philanthropic counsel, at 404.333.0421 or aocarroll@cfgreateratlanta.org.

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