President-elect Donald Trump’s proposed tax plan includes provisions that will limit the charitable deduction, which has long been considered a staple of the philanthropic sector’s development efforts. According to nonpartisan think tank Tax Foundation, Trump’s proposal will, among other things, cap itemized deductions at $100,000 for single filers and $200,000 for married couples filing jointly, where currently an individual can deduct up to 50% of their adjusted gross income, in most instances.
This could severely limit the total amount of donor dollars directed to the social sector. In an open letter, the Charitable Giving Coalition defended the practice, stating, “The charitable deduction is different than other itemized deductions in that it encourages individuals to give away a portion of their income to those in need. It rewards a selfless act, and it encourages taxpayers to give more funds to charities than they would otherwise give.”
Charity Navigator likewise believes that encouraging giving is vital to the success of the nonprofit sector. As we see in our data at the end of every year and as you can see in the graph below, charitable giving spikes significantly as we approach New Year’s Day, which indicates how effective tax-based giving incentives are.
|Amount donated using Charity Navigator Giving Basket in late 2015|
While we cannot know whether what has been proposed will come about, it is better to operate under known conditions than to wait for what may come. In light of both the proposed changes and simply the uncertainty of a new political landscape, Holland & Knight, a private wealth services firm, along with other prominent financial institutions, is advising that donors prioritize charitable giving as we head towards the end of the 2016. Based on this, we encourage our users to make the most of current tax incentives this giving season, while we can still be certain they are in place.