Tax treatment of charitable giving

Charitable contribution has always been a hot IRS tax audit item.

Recently, the Congressional Budget Office (CBO) published a report entitled “Options for Changing the Tax Treatment of Charitable Giving.” While the deduction of charitable donations has historically been a feature of the U.S. individual income tax system, the cost, equity and efficiency of the deduction are now the focus of increased scrutiny.


As described by CBO, under current law, taxpayers who itemize deductions may deduct the amount they donate to charities from their adjusted gross income when determining how much they owe in federal income taxes. At current levels of charitable giving, the cost of the deduction–measured as the additional revenues that could be collected if the deduction was eliminated–will total $230 billion between 2010 and 2014, according to the Joint Committee on Taxation. Numerous proposals have been made in recent years to alter the income tax treatment of charitable giving by individual donors. For their analysis, CBO examined how much taxpayers in various income groups donate to charities and what types of organizations receive those donations. CBO also investigated how changing the structure of tax incentives for giving would affect the tax subsidy, the overall level of charitable giving, and the extent to which different income groups benefit from the tax preference.

Specifically, CBO looked at 11 options for altering the current income tax treatment of charitable giving, which can be grouped into four categories: retaining the current deduction for itemizers but adding a floor; allowing all taxpayers to claim the deduction, with or without a floor; replacing the deduction with a nonrefundable credit for all taxpayers, equal to 25% of a taxpayer’s charitable donations, with or without a floor; and replacing the deduction with a nonrefundable credit for all taxpayers, equal to 15% of a taxpayer’s charitable donations, with or without a floor.

The report is available at http://www.cbo.gov/ftpdocs/121xx/doc12167/CharitableContributions.pdf.

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