Thursday, February 7, 2013

Nonprofits worry new federal tax law will impede charitable giving

On January 1st of this year, Congress passed a new tax law that places limitations on tax deductions for high earners. Under the new law, the limits on deductions reduce the value of all itemized deductions for individuals earning more than $250,000 and married couples earning more than $300,000.

Consequently, charities and nonprofit organizations fear the new limits will frustrate the charitable giving/donations on which they rely. However, experts do not believe the new limits will reduce charitable giving. Instead, experts believe the new law offers incentives for high earners facing the increase in tax rates to search for deductions. Sandra Swirski, executive director of the Alliance for Charitable Reform, explains the “charitable deduction incentive is different than any other deduction or credit in the tax code.” This is because charitable deductions encourage people to give away some of their income unlike other deductions and credits that encourage people to purchase things and write them off.

That the fears of the nonprofit organizations are at variance with the optimism of the experts poses interesting questions concerning the factors that may influence incentives for charitable giving. Do individuals donate for the tax benefits? Are individuals motivated by their own sense of altruism?


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