Nov 25, 2018 - Politics & Policy

Trump's tax cuts diminished deductibility for charitable donations

Data: Nonprofit Quarterly; Chart: Lazaro Gamio/Axios
Data: Nonprofit Quarterly; Chart: Lazaro Gamio/Axios

One huge change this year is in the tax code. The Trump tax cuts increased the standard deduction and therefore make it less likely that you'll be able to deduct your charitable donations. Only about 11% of households are likely to itemize their taxes this year, down from 26.4% last year.

The big picture: The tax break for charitable contributions has always been a tax break only for the minority of Americans who itemize. Households earning more than $1 million per year nearly always itemize. They accounted for 30% of itemized charitable donations in 2015; expect that number to rise even further.

  • Among normal households, the tax change is not well-understood. With the economy remaining robust, more than 80% of Americans are likely to give at least as much as they did last year. Then, when it comes time to itemize their 2018 taxes, millions of them are likely to discover that they will receive no tax benefit for doing so.
  • One way to get the benefit is to front-load two or three years' worth of donations into 2018, to push yourself above the new, higher standard deduction. This is called "bunching," but so far there's not a lot of evidence that it's happening.

Be smart: The charitable tax deduction never made much sense from a public-policy perspective. Now it's smaller, which is good. But it's also more targeted to the very rich, which isn't.

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