Hyden, Miron & Foster, PLLC Law Blog

Tuesday, July 11, 2017

Is the Charitable Tax Deduction Going Away?

“Uncertainty” is one of the buzz words thrown around in the media when discussing Washington politics these days, and it definitely applies to those who like to take advantage of the charitable gift tax deduction to direct their tax dollars towards the good causes of their choice.

There are strong indications that the current administration intends to make efforts to reduce the availability of charitable donation deductions, as well as significant questions surrounding its ability to generate the political momentum to accomplish such a task.  Given the current circumstances, those inclined to utilize the charitable giving deduction should stick to the old adage: hope for the best, but plan for the worst. Talking to a charitable planning lawyer can help.

A recent article in Forbes magazine quotes tax attorney and editor of Taxwise Giving Conrad Teitell describing the administration’s suggested tax reform proposals as “by far the greatest threat to tax-encouraged charitable gifts that I’ve seen in over half a century,” calling the dramatic reduction of the charitable giving deduction combined with the proposed estate tax repeal a “double whammy.”

Under the House of Representative’s “blueprint,” the availability of charitable giving tax deductions would be reduced from approximately 1 in 4 taxpayers to approximately 1 in 20.  For the remaining 5% of taxpayers eligible to use the deduction, deductions would be further limited to donations exceeding 2% of the taxpayer’s adjusted gross income.

The Trump Administration has also indicated a desire to limit overall itemized deductions to $100,000 for individuals and $200,000 for couples.  Combined with the proposed reduction in availability of the charitable giving deduction, these limitations indicate a potential tax reform plan that dramatically reduces funding to donor-supported nonprofits and charities.  According to estimates from the Congressional Budget Office and the Tax Policy Center, several of the proposed changes could cause charitable donations to be reduced by tens of billions of dollars individually; taken collectively the changes’ total reduction to American charitable giving is difficult to predict.

The theory behind the proposed tax plan is that the reduction in overall taxes will stimulate the economy so much that individuals and corporations will have dramatically increased revenues, and from those revenues more people would make charitable donations.  This would be a departure from recent precedent, however, which has tended towards expanding (rather than contracting) the availability of charitable giving deductions.

In hoping for the best, taxpayers should take advantage of the current focus on these issues to make their views known to their legislators.  They are most likely to be receptive to constituent feedback while the issue is up for debate, so now is the time to give your Congressman a call.  On the other hand, to prepare for the worst, taxpayers also need to have plans in place to address any contingency.  

If your tax plan relies on charitable deductions in any significant way, now is the time to speak with a tax professional to discuss and make preparations for any alternative plans that may become necessary to address potential changes to tax law and policy.  Contact an Arkansas estate-planning attorney at Hyden, Miron & Foster, PLLC today to set up your free consultation.

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