TAX TOPICS
By Jim Martin, CPA, and John M. Collar
Tax Planning Around Changing
Charitable Contribution Law
A
s tax professionals, CPAs are conditioned to expect annual tax law changes and to then assist clients in preparing for the changes. Taxpayers, on the other hand, have varying levels of understanding of tax law changes and are motivated by many things other than income tax planning. Some tax law changes substantively affect taxpayers and may offer opportunities for taxpayer benefit if properly planned for. This article focuses on recent tax law changes that dramatically reduced the number of taxpayers who itemize. It then examines the level of charitable giving, possibly in anticipation of the changes in the tax law related to itemized deductions. Put another way, we ask the questions: If taxpayers knew that
the deductibility of their charitable contributions would be dramatically changing next year, would they give more or less this year to incur a tax benefit? Further, was this tax-driven decision to increase or decrease charitable giving possibly affected by taxpayer religiosity? Or was the taxpayer’s anticipatory level of giving possibly affected by suspension of the Pease limitation in 2018? Finally, this research is particularly timely. It is based on IRS provided taxpayer data for the nearly 1/3 of individual taxpayers who itemized before 2018. As explained herein, future research using IRS data will be far less comprehensive given the huge drop in the number of itemizing taxpayers beginning in 2018. The typical individual taxpayer will calculate his/her federal taxable
income by deducting the larger of his/her itemized deduction or standard deduction from adjusted gross income. The Tax Cuts and Jobs Act (TCJA) was signed into law in October 2017, with most of the resulting tax law changes taking effect in 2018. One of the more substantive changes was the marked increase in the standard deduction. In 2017, the standard deduction for a single taxpayer was $6,350 and a married filing jointly was $12,700. In 2018, the standard deductions were increased to $12,000 for single and $24,000 for married filing jointly taxpayers. In addition, changes were made that restricted or eliminated the deductibility of casualty losses, home mortgage interest, state and local taxes, and miscellaneous items as itemized deductions. Today's CPA November / December 2021 9
