Charitable Contributions

Church Law and Tax 1990-07-01 Recent Developments Charitable Contributions Richard R. Hammar, J.D., LL.M., CPA

Church Law and Tax 1990-07-01 Recent Developments

Charitable Contributions

Efforts are underway in both houses of Congress to resurrect the charitable contribution deduction for “nonitemizers.” Until 1982, charitable contributions could be deducted only as itemized expenses on Schedule A. This meant that taxpayers who did not have sufficient itemized expenses to use Schedule A received no tax deduction or benefit from their charitable contributions. However, from 1982 through 1986, Congress permitted “nonitemizers” to deduct at least some of their charitable contributions. For 1982 and 1983, they could deduct up to $25 of their contributions. This amount increased to $75 in 1984. In 1985, nonitemizers were permitted to deduct 50 percent of their total contributions (without any dollar limit), and in 1986 they were permitted to deduct all of their contributions to charity (subject to the same limitations that applied to itemizers). The law authorizing charitable contribution deductions for nonitemizers expired at the end of 1986, and was not renewed by Congress. Accordingly, since 1987, taxpayers who are not able to use Schedule A have received no tax benefit from making charitable contributions. This has meant that most taxpayers are prevented from deducting any portion of their charitable contributions, since it is estimated that about 85% of all taxpayers have insufficient deductions to use Schedule A (due to the substantial increase in the standard deduction). In recent weeks, bills have been introduced in both houses of Congress that would reinstate the charitable contribution for nonitemizers. Representative Byron Dorgan (D-ND), in explaining his bill, observed: “Under current law, only those taxpayers who itemize deductions receive tax incentives for charitable giving. Consequently, only upper-income taxpayers, who generally itemize, are encouraged by the tax laws to make charitable contributions. It makes no sense to me that those with low to moderate incomes, who generally are unable to itemize, do not receive the same encouragement to make charitable contributions …. The consideration of restoring the charitable deduction for the many Americans of modest incomes who do not itemize is now particularly timely, in light of recent studies confirming that tax incentives for nonitemizers would stimulate their charitable giving. More than 77 million taxpayers who do not itemize their returns are not told by our tax code that their charitable giving is going to be treated less generously than the charitable giving by upper income folks. That doesn’t make sense to me. I believe a nonitemizer who contributes $500 to charity should receive the same tax benefit as the itemizer who contributes $500 to charity. The rationale underlying the deduction applies to all taxpayers, that is—all individuals should be encouraged to make donations by excluding from taxation the income they contribute for a public purpose. Allowing a deduction for nonitemizers will stimulate more charitable giving which will provide more funding for worthwhile nonprofit organizations …. Studies demonstrate that lower income households—nonitemizers—have historically contributed a higher percentage of household income to charity than higher income households.”

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