The Charitable Giving Deduction and Churches
- Monday, February 25, 2013
The tax deductibility of gifts to churches and other charities continues to be an issue of high interest on Capitol Hill. In the 2012 presidential race, both candidates proposed capping the charitable deduction—so this is hardly a partisan issue.
Even though supporters of churches are generally more committed to make charitable gifts as compared with those who give for other charitable purposes, any reduction in giving incentives would not be good news for churches.
The recent hearings conducted by the House Ways and Means Committee provided more evidence of the interest of Congress in tax deductions claimed by those making charitable gifts. Forty-three representatives of nonprofit organizations made their way to the Hill on Valentine’s Day to share their ideas on this issue.
Some of the positions shared with the Committee by those presenting testimony:
Non-itemizers. Presently those who do not itemize deductions on Schedule A of Form 1040 do not benefit from the charitable deduction. There was some sentiment expressed for expanding access to the deduction to all taxpayers regardless of whether they itemize deductions or take the standard deduction.
Charitable deduction floor. For those who currently itemize their deductions, charitable gifts are deductible from the first dollar given. Here is how a charitable deduction floor would work: Only gifts above a certain dollar floor, let’s say $100, would be deductible. So, every itemizer would “lose” a deduction for the first $100 they give each year to charity.
- IRA rollover. The Individual Retirement Account (IRA) rollover is a provision givers have enjoyed for a number of years, but it is not a permanent provision in the tax law. The benefits must be extended from year to year. Conrad Teitell, noted charitable tax attorney, urged Congress to make permanent the provision that allows direct tax-free distributions from IRAs to charity. Unless Congress acts to extend the provision, it will expire at the end of 2013.
What may come from the current debate about the charitable deduction? Only the Lord knows—literally—but while it is unlikely we will see the charitable deduction disappear, it is very possible that changes could be made as a part of tax reform, resulting in a reduction of incentives to make charitable contributions.
In Mr. Teitell’s recent testimony before the Committee, he warned against tinkering with the current charitable giving deduction. He said we should beware of salami tactics which Congress might use with respect to the charitable giving deduction. The term “salami tactics” was coined by Matyas Rakosi, a Hungarian politician in the 1950s. Mr. Matyas said:
If your opponent has a salami and you want it for your very own, you must not
grab it—because he will defend it. Instead take for yourself a small slice and he
will not notice it. Or, if he does, he will not mind very much. And then you take
another slice, and then another slice. And slowly but surely, that salami will pass
from his possession into yours.
“So it could be with the charitable tax incentives—a slice here and a slice there. Caps can be lowered, floors raised and credits reduced. And before you know it, our nation’s unique tax encouragement to charitable giving would disappear,” Mr. Teitell testified.
In the light of the discussions about reducing charitable gift incentives, what should churches do? Here are just a few of the basics:
- Inform congregants to take advantage of the current charitable giving incentives:
- Gifts of cash (and checks). Cash gifts to churches are deductible up to 50 percent of a taxpayer’s adjusted gross income.
- Gifts of stock. Gifts of publicly held stock to churches that have been held 12 months or longer are deductible up to 30 percent of a taxpayer’s adjusted gross income.
- Gifts of real estate. Gifts of real estate that have been held 12 months or longer are deductible up to 30 percent of a taxpayer’s adjusted gross income.
- Rollovers from Individual Retirement Accounts (IRAs). An individual age 70-1/2 or older can make outright charitable gifts from an IRA—including required minimum distributions—of up to $100,000 each year to a church (or other public charities) and not have to report the IRA distributions as taxable income on his or her federal income tax return. A charitable deduction is not allowable for the amount transferred to charity from an IRA, but the donor is not taxed on the amount transferred. Not being taxed on income that would otherwise be taxable is the equivalent of a charitable deduction. This benefit is available even if the taxpayer does not itemize his or her deductions.
- Encourage generosity toward God. If Christians use the charitable deduction as the sole basis to support their church, they are acting more like the rest of our culture. Generosity toward God should not be not dependent on a charitable tax deduction.
As my friend Wes Willmer says, “Scripture consistently reminds us that if Christ is not first in the use of our money, He is not first in our lives. Our use of possessions demonstrates materially our spiritual status. Is it possible that our checkbooks are a better measure of our spiritual condition than the underlining in our Bibles?”
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