What’s on the Legislative Menu that Could Impact Charitable Giving?

Keeping up with an ever-evolving landscape of tax legislation can be a full-time job! Here’s a quick rundown of three things you need to know: 

– Sunsetting provisions of the Tax Cuts and Jobs Act (TCJA) of 2017. The TCJA’s scheduled expiration at the end of 2025 will revert key tax policies to pre-2017 levels, potentially affecting charitable giving incentives. For example, the top individual tax rate is scheduled for a bump from 37% to 39.6%, potentially increasing the benefits of charitable tax deductions for your high-income clients. At the same time, the limit for cash donations to public nonprofits is slated to drop from 60% of AGI to 50%, reducing the deduction for some of your clients. Finally, the estate tax exemption is scheduled to drop to approximately $7 million per individual. Because the exemption would nearly be cut in half, and more estates would be subject to tax, a larger subset of your clients could benefit from charitable bequests to avoid estate tax. All of this assumes that intervening legislation won’t prevent the sunset. 

– Potential expansion of charitable deduction. Proposals like the Charitable Act aim to introduce a universal deduction for non-itemizers, broadening tax incentives for your clients across income levels. The bipartisan Charitable Act (S. 317/H.R. 801) proposes to restore and expand the charitable deduction for non-itemizers for two years. It would set the cap at approximately $5,000 for individuals or $10,000 for joint filers, providing additional incentive for charitable giving. This will help the more than 90% of Americans that don’t itemize and take the standard deduction. The bill is still popular among industry leaders and appears to have maintained momentum since it was introduced.

– Consequences remain to be seen. Above all, the 2025 “cliff” may trigger the first major tax code rewrite in decades, which in turn would have a ripple effect in many areas of your clients’ lives, including the nonprofits your clients support. Post-TCJA, for example, charitable giving dropped by as much as $20 billion, according to one study, in the wake of reduced tax benefits.

The team at the Community Foundation stays on top of legal developments at the intersection of tax policy and charitable giving. We keep our fingers on the pulse of potential implications for you, your clients and the nonprofits they support and we are here to help you navigate the changes.