Update on the Potential Universal Charitable Deduction

During the COVID-19 pandemic, Congress temporarily introduced a provision allowing individual charitable donors who did not itemize federal income tax deductions to deduct up to $300 in contributions for the years 2020 and 2021. This universal charitable deduction significantly motivated many donors who might not have supported charities otherwise. However, this deduction expired at the end of 2021. Now, a bipartisan group of U.S. senators, with strong backing from the not-for-profit sector, is working to bring this tax break back.

Fluctuations in Charitable Giving

The Tax Cuts and Jobs Act approximately doubled the standard deduction, leading many donors who previously itemized their deductions and included charitable contributions to opt for the standard deduction instead. Research from Indiana University and the University of Notre Dame revealed that this change caused a $20 billion decline in charitable donations in 2018, the first year the higher standard deduction was in effect, impacting many nonprofits.

While the pandemic made it harder to track giving trends from 2020 onward, the temporary universal charitable deduction seemed to encourage donations from middle- and lower-income households. The National Conference of State Legislatures reported that over 47 million U.S. households took advantage of this tax incentive in 2021, with more than 21% of these donors having adjusted gross incomes under $30,000.

Potential Congressional Developments

In early 2023, a bipartisan group of U.S. senators introduced the Charitable Act, with a similar bill following in the U.S. House in May 2023. This proposed legislation aims to extend and expand the nonitemized deduction for charitable donations by reinstating and increasing the $300 deduction allowed in 2020 and 2021 ($600 for married couples filing jointly in 2021). Under this bill, individual taxpayers who do not itemize could potentially deduct up to $4,500 in donations annually, with joint filers eligible for double that amount.

Unsurprisingly, the bill has garnered strong support from nonprofits and advocacy groups, including the National Council of Nonprofits and the Charitable Giving Coalition. The most recent Giving USA survey, published by The Giving Institute, indicated that charitable donations fell by an inflation-adjusted 2.1% in 2023, reflecting a longer-term trend of declining charitable giving.

The Future of the Legislation

Although the Charitable Act has been referred to the Senate Finance Committee, it has not yet been taken up, leaving its future uncertain. Organizations like the Association of Fundraising Professionals are urging their members to reach out to legislators to push the bill forward. Meanwhile, the nonprofit sector is expected to continue advocating for legislation that could boost charitable giving levels.

Reach out for Help

Have questions? Please reach out to one of our experts at Accavallo & Company, LLC. We can be reached at 203-925-9600 or email [email protected] .

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