New tax laws may reduce charitable giving by the wealthy, with top earners facing a cut from 37% to 35% effective tax benefit. The Indiana University Lilly Family School of Philanthropy estimates this cap alone will reduce giving by $4.1 billion to approximately $6.1 billion annually. The bill also limits tax incentives for itemizers.
The bill creates new incentives for middle- and lower-income filers to give, allowing roughly 140 million taxpayers who do not itemize to deduct up to $1,000 in cash donations per filer. Experts are skeptical that these changes will balance out the reduction in giving by top earners, emphasizing the significant impact of wealthy donations.
Charitable giving in the US continues to rise, reaching $392.45 billion last year, up 52% since 2014. However, fewer Americans are giving as wealthy donors make up an increasing share of philanthropy. Financial stress limits everyday donors’ ability to give, while wealthier ones donate more, leading to a drop in the number of donors.
Economist Daniel Hungerman questions whether the new deduction will spur a substantial number of donations or mainly reward taxpayers who would have given anyway. Trump’s tax bill permanently raises the standard deduction, dampening charitable giving, with his study estimating a permanent annual drop of $16 billion after the 2017 reforms. Encouraging everyday donors to give now could lead to higher levels of donating later.
Taxpayers planning to take the standard deduction may benefit from waiting until 2026 to make donations, while itemizers and high-income donors will benefit more by giving before the end of the year. Filers can only deduct up to 60% of their adjusted gross income for cash donations to public charities per year, with the percentage dropping to 30% for contributions of long-term appreciated assets like stock or real estate. The IRS has yet to clarify if excess deductions will be subject to new charitable deduction rules. Donors unsure of how to give now can consider donor-advised funds (DAFs) for flexibility in allocating funds. Many are donating appreciated stock to offset gains and rebalance portfolios amid the stock run-up this year. Experts await IRS guidance on issues like deductions for non-grantor trusts and charitable donations. High-income donors 73 and older can reduce taxable income dollar-for-dollar by donating required minimum distributions from an IRA to charity. This strategy is popular among retirement-age clients and can help lower income to qualify for the enhanced SALT deduction, which maxes out at $40,000 for taxpayers with incomes of $500,000 or less.
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1. The U.S. economy added 943,000 jobs in July, exceeding economists’ expectations of 870,000. The unemployment rate dropped to 5.4%, the lowest since the start of the pandemic.
2. Apple became the first U.S. company to reach a $3 trillion market cap. The tech giant’s stock price has surged over 110% in the past year.
3. Tesla reported record revenue of $11.96 billion in the second quarter, driven by strong demand for its electric vehicles. The company delivered over 200,000 cars in the quarter, a 121% increase year-over-year.: Can middle-class donors make up the giving gap?