Charitable Deduction

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It’s tempting to think of giving as a singularly selfless act — and there’s no doubt that many donations are given each year out of pure motives. However, donors often have other factors in mind, even if they aren’t the primary element fueling their generous spirits.

Case in point: tax policy.

Let’s take a closer look at the Charitable Act currently in Congress and the potential positives that the charitable deduction could have on church giving if it is passed.

Pandemic Giving and the CARES Act

In 2020, the CARES Act created a series of generous exceptions to charitable giving during the early years of the pandemic. In 2022, those benefits expired, and as of this writing, they have not been renewed. 

While Americans can still give, they can no longer claim charitable donations if they don’t itemize their taxes. According to the IRS, that means roughly one in 10 Americans are actually able to take advantage of itemized charitable donations at the moment.

This has drawn the attention of a large group of churches and similar religious organizations in an attempt to restore the upward momentum of charitable giving in America. It’s a legal battle playing out in Congress at the moment, and church leaders and administrators should be paying close attention.

The Push to Restore (and Expand) Charitable Tax Benefits

Since 2022, the ability to write off charitable donations has no longer been available to Americans. As more data becomes available in the wake of this development, it is believed to have had a negative effect on how people are giving in the United States.

A letter sent on Giving Tuesday (November 28) of 2023 by the Charitable Giving Coalition (CGC) shined a light on how a lack of tax incentives is holding back middle-class and lower-class donors from giving. The letter brought the force of a thousand churches to bear on a new piece of potential legislation called the “Charitable Act” (Bill 566).

The bill is a piece of bipartisan legislation that, in the words of the CGC, “would restore and expand the charitable deduction for non-itemizing taxpayers, also known as the universal charitable deduction.”

The letter goes on to point out that 88% of American donations come from a meager 13% of donors. In addition, in the year 2000, two-thirds of households gave to charity in some capacity. Now that number has dropped to 50%. The issue, the CGC believes, comes from a lack of incentives to give. When households with less overall wealth can write off additional gifts, it makes it easier for them to support above and beyond what they might otherwise do.

After years of growth in giving, the CGC reports that 2022 saw a significant downturn in charitable activity. After adjusting for inflation, Americans gave just $499 billion. If that sounds like a lot, think again. That marks the largest decrease in growth (10.5%) in the nearly three-quarters of a century that Giving USA has tracked giving data in the States. 

The data doesn’t look better in 2023. In fact, early estimates show more drops in giving.

Would the Charitable Act Work?

According to data highlighted by the CGC, a non-itemized charitable deduction is effective. One needs to look no further than the CARES Act for proof. When similar legislation was in effect in 2020 and 2021, gifting shot up. 

The coalition is using this data to argue that the deduction shouldn’t just be reinstituted. The giving cap (which was originally $300 for individuals and double that for joint filers) should be increased to encourage even more giving.

The bill wouldn’t just reinstitute the previous deduction. It would dramatically expand it to a cap of one-third of the standard deduction — that’s $4,600 for individuals and $9,200 for those filing jointly.

Using Taxes to Promote Giving

Giving should come, first and foremost, from the heart. However, the ability to leverage tax incentives is a powerful additional benefit. It can enable millions of middle- and lower-income households to join in generously supporting the organizations that they believe in — including their churches.

As the Charitable Act works its way through Congress, it’s important for church leaders to remain aware of its progress and the potential that it could have on their congregation’s giving. If you have partnered with Chaney & Associates, rest assured that we will stay up to date on the situation.

As the accounting firm for the church, our team keeps close tabs on all developments within the faith and non-profit spaces. We watch developing laws and legal expectations, monitor potential tax implications, and are always on the lookout for ways your church can improve its finances.

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