The Obama administration is proposing to eliminate or cap all tax deductions as one way to ameliorate economic shortfalls related to the “fiscal cliff” (the ending of Bush-era tax cuts). As a significant percentage of tax deductions for the average individual derive from state taxes, local taxes, and mortgage interest, a cap could severely limit deductions earned from charitable donations.
The major concern of nonprofits and foundations relates to donors’ motivation to give. While some donors assert that the charitable tax deduction is not their main philanthropic motivation, 30 percent of Americans say they would reduce their giving if tax incentives were removed, according to the results of a nationwide survey conducted by United Way. Community foundations have a special concern related to a tax deduction cap, because donor-advised fund holders receive an immediate tax deduction when they make deposits into their fund, which foundations often use as an incentive when working with donors to establish a fund.
The potential impact of limiting the tax incentives for charitable donations is astronomical. As many advocates have already pointed out, decreased donations will hamper the work of worthy nonprofits that provide much-needed services to communities across the country and employ 10 percent of America’s workforce. Additionally, decreased funding from individuals will limit a charity’s flexibility, forcing the organization to rely on declining government and foundation funding.
Many nonprofit leaders are urging the government to keep the charitable tax deduction available as an invaluable tool for nonprofits. Click on the links below for more information about the impact of this potential change.
- Charitable giving in America: Vital to thriving communities (ProjectGiving.org)
- Save the charitable tax deduction from the fiscal cliff (PhilanthroFiles)
- Why do we have a charitable tax deduction, anyway? (Marketplace.org)
- Eight tips for deducting charitable contributions (IRS)
Image courtesy David Reber