Bipartisan group of Senators seeks return of Form 1040 direct charitable tax deduction

Photo by Liza Summer

The Tax Cuts and Jobs Act's substantial increase in standard deduction amounts accomplished one of its supporters' major goals. More taxpayers have an easier time filing now because they claim the standard deduction.

But the 2017 tax reform law had a less-welcome side effect.

Charitable giving, which must be claimed as an itemized deduction, has dropped.

Even for wealthier taxpayers, who are the most likely to still itemize and who under the law change can claim an even larger percentage of their charitable gifts, deductible donations have plummeted.

Some federal lawmakers, however, are hoping to change that trend by reinstating a charitable tax break for taxpayers who don't itemize.

Easier filing is hard on charities: The Tax Policy Center's Briefing Book estimates that the law cut the number of those itemizing their charitable contributions by more than half, from 21 percent to about 9 percent of households.

This decrease, says the Washington, D.C.-based joint venture of the Urban Institute and Brookings Institution, is especially notable in the number and amounts of gifts to smaller nonprofits.

Granted, a lot of people give to their favorite charities even without any tax break. But a lot also give and give more — or gave, before tax reform — in part because of the tax benefit.

Short-term Form 1040 deduction: The drop in donations was why for tax years 2020 and 2021 a limited charitable deduction of some cash donations could be claimed directly on Form 1040.

That temporary charitable deduction option expired at the end of 2021.

But under a proposal from a bipartisan group of senators, the direct donation deduction for filers who claim the standard deduction would be reinstated and increased.

The Charitable Act introduced: U.S. Sens. Chris Coons (D-Delaware) and James Lankford (R-Oklahoma) introduced The Charitable Act. Officially known as S. 566, the bill has nine original cosponsors, six Democrats and three Republicans.

In announcing the bill, both lead sponsors pointed to the critical safety net services that churches and other nonprofits provide to the most vulnerable in communities nationwide, including job training, homeless and food assistance, and spiritual counsel.

"People of all means gave freely to charities, houses of worship, and other nonprofits to the tune of $449 billion last year. I am proud to have worked on The Charitable Act, which will expand and extend the deductions Americans can claim to encourage even more Americans to embrace the civic virtue of charitable giving," said Coons.

"As Oklahomans and Americans donate their time, money, and resources to our nation’s nonprofits so they can serve people, they should be able to deduct more from their federal taxes as an incentive to financially support nonprofits since these services are often in place of government benefits," added Lankford.

As with the temporary Form 1040 write-off, The Charitable Act would allow taxpayers who donate to charities, houses of worship, religious organizations, and other nonprofits to deduct that donation from their federal taxes, even if they don't otherwise itemize.

Larger direct deductions: But the new bill's deduction amounts would be much larger than the previous $300 for single filers and $600 for married filing jointly couples, the amount would be much larger.

Generous taxpayers could claim up to one-third of the standard deduction for their filing status. For 2023 returns, that would be up to —

• $4,617 of the $13,850 single filer standard amount; and
• $9,233 of the $27,700 standard amount for married couples who file a joint return.

What about head-of-household filers? These unmarried taxpayers who are supporting dependents get a larger standard deduction amount. For 2023, that's $20,800.

However, right now The Charitable Act appears to follow the 2020-21 direct donation deduction guide and include heads of households, as well as qualifying widows/widowers, in the single taxpayer category.

Other gift donation rules also apply: The prior directly-on-Form-1040 deductions also were limited to donations made by cash, which in tax-speak is currency, credit card, or check gifts.

The cash donation requirement would remain under the Charitable Act gifts. Gifts of property, such as the value of donated household goods, don't count here.

The cash gifts also must be made in the applicable tax year. Excess contributions that taxpayers carried forward from prior years don't qualify for this deduction.

Finally, the donations must be to an Internal Revenue Service-approved organization. This generally is a 501(c)(3) that is listed in the IRS' tax-exempt organization online search tool.

It's possible that things could change as The Charitable Act moves through the legislative process. The bill is awaiting action in the Senate Finance Committee, on which Lankford serves.

Other supporters: In addition to Coons and Lankford, the other Senate cosponsors (so far) are Republicans Marco Rubio (Florida), Susan Collins (Maine), and Tim Scott (South Carolina); and Democrats Catherine Cortez Masto (Nevada); Margaret Wood Hassan (New Hampshire); Raphael G. Warnock (Georgia); Amy Klobuchar (Minnesota); Gary C. Peters (Michigan); and Jeanne Shaheen (New Hampshire).

Beyond Capitol Hill, the bill is supported by numerous nonprofits, including YMCA, United Way, Goodwill Industries, and the American Heart Association, as well as coalitions of nonprofits that are part of the Charitable Giving Coalition, the National Council of Nonprofits, Leadership 18, the Nonprofit Alliance, United Philanthropy Forum, the National Philanthropic Trust, Jewish Federations of North America, Independent Sector, Philanthropy Southwest, the Association of Fundraising Professionals, Council for Advancement and Support of Education, the Faith & Giving Coalition, and Covenant House.

You also might find these items of interest:

• 6 tax donation deduction tips for Giving (and any) Tuesday
• IRS approves some fake charities. What's a donor to do now?
• Year-end donations double payoffs: charities now, donors at tax filing time

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