What the White House Tax Plan Means for Charitable Giving

The White House’s preliminary tax plan, released in late April, keeps the itemized deduction for charitable contributions while eliminating most other itemized deductions. The plan, however, also proposes raising the standard deduction, which could impact taxpayers who itemize their taxes—and who are responsible for a significant portion of charitable giving. While the Internal Revenue Code (IRC) hasn’t seen a major overhaul since 1986, the tax law as we know it today may not be the tax law even a few months in the future.

If and when tax legislation is passed, it is an unknown as to the effective dates of the new rules.  Effective dates can range from the date of enactment, to tax years beginning after the date of enactment, or even to years in the future or retroactively (but tax legislation usually does not have a retroactive effective date, but that can happen). And different provisions will have different effective dates. Regardless of how tax code changes shape up, encouraging giving now—while the outcome is predictable—is imperative.  

Below are some of the details of tax changes proposed in the White House’s preliminary tax plan:

Lowering the number of tax brackets from seven to three: at 10 percent, 25 percent and 35 percent. It hasn’t been specified which levels of income would be affected.

Elimination of many itemized deductions and increasing the standard deduction:
  • Trump’s plan proposes eliminating most itemized deductions outside of the charitable deduction and itemized deduction for mortgage interest. In particular, the elimination of the state and local tax deduction could significantly decrease the number of taxpayers who itemize their deductions.
  • The Trump plan would also increase the standard deduction from the current $6,350 for individuals and $12,700 for joint filers to $12,700 and $25,400, respectively. This means fewer people may be itemizing, and therefore may not be as concerned about generating deductions through charitable contributions.
Estate tax:
  • Trump has also proposed eliminating the federal estate tax, currently at 40 percent. Charitable contributions from an estate reduce the overall taxable value of the estate. If there is no estate tax, charitable requests may be significantly reduced. 
What does this mean for America’s charities? Our advice remains the same as it did when we discussed tax reform on the blog last fall—charities should encourage donors to contribute now to take advantage of deductions while they’re still available to maximize their fundraising potential.