Potential Tax Changes Affecting Charitable Contributions

It is always a risky proposition to predict what Congress will do, especially in the area of taxes. Currently, the Tax Reform Act of 2014 is in the House. This is a major tax reform effort of almost 1,000 pages. It should be taken seriously, as this proposal is the result of over three years of House Ways and Means Committee hearings with more than 30 hearings on tax reform and 11 separate bipartisan groups working to develop the proposed legislation. While it is not likely to be fully passed in its present form, there is reason to believe that significant tax reform will occur. Committee Chair Dave Camp listed two goals for this legislation “One goal is to make the tax code simpler and fairer for families and employers. Another goal is to strengthen the economy so there are more jobs and bigger paychecks for American families.” Included in the proposed legislation are several proposals that have a significant impact on churches and other non-profit organizations.

Five changes are proposed in the area of charitable contributions. First would be a floor on deductions for charitable contributions. This would be a two percent of adjusted gross income (AGI) floor, similar to the current floor for miscellaneous itemized deductions. Taxpayers would be allowed to deduct only those charitable contributions that exceed two percent of their adjusted gross income.

A second proposal would limit the deduction for contributions of real property, business interests, and certain other non-cash property. The deductions would be limited to the donor’s adjusted basis. Current law allows a deduction of the fair market value for such property held longer than 12 months. A deduction of fair market value for publicly traded securities and tangible personal property to a public charity to be used by the organization in conducting its exempt activities would still be allowed.

Third, donors would be allowed to deduct contributions made until April 15 of the current year on the prior year’s return. This would be an effective tool, allowing donors to reduce their tax liability by making a charitable contribution as late as April 15 and counting it in the prior year. However, there is a real possibility of confusion on the part of organizations and donors in regard to being certain that donations from January 1 – April 15 are not deducted on returns for two different years.

A fourth proposal would lower the cap on deduction limitations. Currently gifts to public charities are limited to 50 percent of the donor’s AGI and 30 percent for contributions to private non-operating foundations. These limits would be reduced to 40 and 25 percent, respectively.

A final change in this area relates to the Pease rule. This legislation reduces itemized deductions for certain high-income taxpayers. The Tax Reform Act of 2014 would repeal this limitation.

It is anticipated that Congress will take up this issue after the November elections. There are other changes included in this legislation that would impact non-profit organizations. These will be discussed in a future article.

Dr. John Stancil (My Bald CPA) is Professor Emeritus of Accounting and Tax at Florida Southern College in Lakeland, FL. He is a CPA, CMA, and CFM and passed all exams on the first attempt. He holds a DBA from the University of Memphis and the MBA from the University of Georgia. He has maintained a CPA practice since 1979 with an emphasis in taxation. His areas of expertise include church and clergy tax issues and the foreign earned income credit. He prepares all types of returns, individual and business.

Dr. Stancil has written for the Polk County Business Journal and has presented a number of papers at academic conferences. He wrote the Instructor’s Manual for the 13th edition of Horngren’s Cost Accounting. He is published in the Global Sustainability as a Business Imperative, Green Issues and Debates, The Encyclopedia of Business in Today’s World, The Palmetto Business Review, The CPA Journal, and in the NATP TaxPro Journal. His paper, “Building Sustainability into the Tax Code” was recognized as the outstanding accounting paper at the annual meeting of the South East InfORMS. He wrote a book entitled “Tax Issues Faced by U. S. Missionary Personnel Abroad ” that will soon be published.

He has recently launched a new endeavor, Church Tax Solutions, which presents online, on demand seminars on various church and clergy tax issues.

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