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The Charitable Deduction

The Issue
Potential changes to incentives for charitable giving in the tax code have been an ongoing part of deficit reduction and tax reform discussions, including a proposal offered by President Obama that would cap the charitable deduction at 28 percent for high-income taxpayers, as well as other proposals to establish a hard-dollar aggregate cap or minimum threshold for claiming itemized deductions.

The charitable deduction is an important and effective incentive for giving, strengthening the nonprofit and philanthropic sector's capacity to meet the needs of our communities.

LATEST NEWS
President's FY 2015 budget repeats 28-percent cap on itemized deductions
For the sixth consecutive year, President Obama's annual budget proposal to Congress for fiscal year 2015 includes a 28-percent cap on all itemized deductions for individuals with income above $200,000 ($250,000 for joint filers). The budget also includes the president's Buffett Rule, which would impose a minimum 30-percent effective tax rate on income above $1 million annually. The charitable deduction would be the only tax deduction available to taxpayers subject to the Buffett Rule.

Camp tax reform discussion draft proposes two-percent floor
House Ways and Means Committee Chairman Dave Camp (R-MI) unveiled a discussion draft of a comprehensive tax reform plan February 26, 2014 that would impose a two-percent of AGI floor for taxpayers claiming the charitable deduction and would extend the deadline through April 15 for making deductible donations.

1,246 nonprofits urge Senate to preserve charitable deduction
On July 25, 2013, Independent Sector was joined by 1,245 nonprofit and charitable organizations in urging Senators to preserve the charitable deduction and other giving incentives during tax reform. Learn more about tax reform

IS Position
Independent Sector advocates for policies that encourage Americans to contribute to the charitable causes of their choice by providing tax deductions for their gifts and tax incentives for volunteer service, removing tax obstacles to charitable gifts, and maximizing gifts from private foundations.

Independent Sector urges Congress to reject proposals that limit the value of itemized deductions for charitable donations. As nonprofit organizations struggle to meet increased demand for services and raise the necessary funds to meet those needs, Congress should seek to encourage all individuals, regardless of income and wealth, to give more to charitable organizations.

In September 2012, the IS Board of Directors adopted Guiding Principles for Public Policy on Charitable Giving. The principles focus on the role of tax policy in encouraging charitable giving, the importance of sustaining the diversity and independence of the sector, and the sector’s commitment to honor the public trust through transparency and accountability. These principles will be used to guide IS's development and assessment of legislative proposals to ensure that America’s strong tradition of charitable giving is sustained and strengthened.

IS Action
In 2011, Independent Sector signed onto a nonprofit coalition letter in opposition to President Obama's proposal to cap itemized charitable deductions at 28 percent for high-income taxpayers.

During the lame duck session in 2012, IS and over 937 other organizations sent a letter to Congress and the President urging them to protect the charitable deduction in so-called fiscal cliff negotiations. As a result of the strong advocacy efforts of the charitable sector, a percentage or aggregate cap on itemized deductions, including the charitable deduction, was not included in the final fiscal cliff legislation passed by Congress. The agreement did reinstate the Pease provision, which reduces most itemized deductions by 3 percent of the amount by which AGI exceeds a specified threshold ($300,000/$250,000), up to a maximum reduction of 80 percent of itemized deductions.

The House Ways and Means Committee held a hearing on Thursday, February 14, 2013 to examine the itemized deduction for charitable giving as part of its work on comprehensive tax reform. Forty-two witnesses, including IS President and CEO Diana Aviv, testified on 7 panels at the hearing to share testimony on the role of the charitable deduction in tax reform discussions. 

Background 
For nearly a century, since the Revenue Act of 1917 first created the charitable income tax deduction, our nation’s tax system has strongly encouraged Americans to give back to their communities by providing tax deductions for contributions to charitable organizations. Currently the charitable deduction is available only to taxpayers who itemize on their tax returns, which constitutes roughly one-third of all Americans, and its value cannot exceed one-half of an individual's adjusted gross income.

Some policymakers and lawmakers have suggested limiting the value of the deduction via various proposals to change or limit the charitable deduction.

RESOURCES

 Learn more about recent studies and research on the charitable deduction.

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