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Archive for the ‘Charitable Deductions’ Category

Charitable Deductions

Posted by Christopher Dann
Monday December 10, 2012
Categories: Charitable Deductions, Fiscal Cliff, Fundraising
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In a blog last September (Tax Deductibility is Too Complex for Simple-Minded Position-Taking) we hypothesized about the relationship between the charitable deduction and the other three most commonly employed tax deductions, mortgage interest, property, and state and local income taxes.

As discussions continue in Washington — and they are likely to continue well into next year — another look at these deductibles is in order.

The reason is the nonprofit sector has far less influence on either the Administration or Congress than state and local governments or the banking and real estate industries do, and they will defend mightily their interests in keeping those deductions.

We just reviewed IRS deduction data for 2010, the latest year for which data are available. In 2010, 33% of returns itemized deductions. Of these 87% claimed real estate taxes, 82% charitable contributions. 78% mortgage interest, and 71% state and local income taxes.

Two kinds of deductions for which percentages of adjusted gross income (AGI) thresholds apply — casualty losses and medical expenses come in at far fewer percentages. We would expect that of casualty losses anyway (only 1.5%). But with either a threshold or cap being considered for charitable deductions, it’s worth noting that while 100% of tax filers presumably have medical expenses, only 22% got to claim deductions in 2010.

The total amount of itemized deductions came to $1.234 trillion. What the Administration and Congress will be focusing on will be revenue foregone by these deductions, or what in D.C. tax-speak is called “Tax Expenditures.”  State and local income taxes (20%) and real estate taxes (14%) combined for 34% of the value of itemized deductions. General sales taxes added another 1.5%. Mortgage interest accounted for 32%.

Charitable deductions accounted for 14% of the total value of itemized deductions in 2010.  Despite its lesser value than all other categories but real estate taxes, the charitable deduction presents a path of least resistance in Washington.  If a cap on total deductions prevails, the damage on charitable deductions will be more severe than if a limit representing a percentage of AGI is imposed specifically for charitable deductions.

We agree with those criticizing the White House for urging nonprofit organizations to focus attention on increasing taxes for the very rich. Whether or not that’s a good idea, it’s irrelevant to nonprofit organizations’ best interests. Nonprofits should be focusing their attention on keeping Washington from capping all deductions. Everyone has to pay those state and local taxes and everyone with a mortgage has to pay interest on their loans. No one has to make contributions.

Next Generation Fundraising and Drakes Bay Fundraising merged in the fall of 2013, bringing the longstanding professional acquaintances of their four principals – Tim Oleary, Carol Leister, Cindy Germain, and Christopher Dann – into a single company and combining the special resources and experiences of each to provide clients greater breadth and depth of service.

For more information about Next Generation Fundraising, click here.