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Potential impact on charitable deductions for nonprofits with GOP tax overhaul plan

The GOP-led House of Representatives passed a version of a bill to overhaul the federal tax system earlier this week. President Donald Trump has also made it clear that backs sweeping changes to America’s current tax laws. While it still isn’t clear what specific tax law changes may be passed by the Senate, nonprofits should encourage giving now by their donors, while the value of their charitable deduction is predictable.

President Trump recent tax proposal aims to double the standard deduction for every single American. The deduction for married and joint filers would rise from $12,700 to $24,000 and a single filers’ deduction would increase from $6,300 to $12,000. (Source: “Unified Framework for Fixing Our Broken Tax Code,” The White House, September 27, 2017.) David Thompson, Vice President for public policy at the National Council of Nonprofits told Business Insider that as the standard deduction “goes up, it’s reducing the incentive for giving.” The argument is that the standard deduction would decrease the incentive for Americans to itemize deductions, including charitable giving. As more taxpayers decide on a standard deduction, the argument goes, fewer would feel the need to take advantage of the charitable deduction since both deductions cannot be applied within the same year.

Currently, taxpayers who itemize their taxes pay only around 60 cents on the dollar when they donate to nonprofit organizations, but this could change under Trump’s tax plan. Trump’s tax proposal also strives to limit all itemized deductions to $100,000 for singles and $200,000 for couples. CEO of the Massachusetts Nonprofit Network, Jim Clock explains, “We need the federal incentive for charitable contributions to stay in place because that’s a very important, very powerful incentive for charitable giving.”

We’ll update this story if and when the Senate passes tax legislation, so stay tuned! (and remember, we’re technologists not tax attorneys, so please speak to your own advisers for the best course of action).