How the IRS can unlock the tax code to open up American generosity
I have long believed that Americans naturally want to help people in need. I have seen this generosity firsthand in my decades of service with the Salvation Army, and have always felt that this deep impulse to give is the product of seven factors, or “keys.”
The desire to be generous stems from a historical awareness of the importance of giving in the history of our nation, an acknowledgment that we each have a role to play in maintaining this heritage, gratitude for a certain kindness in our own past, the belief that our gift will make a difference, compassion for those in need, trust in the institution to which the gift is made, and the joy that comes simply from having done something good for someone else. These keys come into play every year in Salvation Army red kettles across the country, and they never fail to inspire me.
But for a key to work, it needs a door. I have therefore come to believe that our nation should provide more opportunities for individuals to use these keys, thereby opening up new opportunities to build a better future that we all work and pray for.
Today, the generosity of the American public is needed more than ever. The pandemic monster that we have all struggled with for over two years has a long tail and it has devastated those in need. It was not until after the Great Recession of 2007-2009 that we at the Salvation Army saw its full economic impact, with people living in poverty for years after the recovery began. Although Americans clearly responded in unprecedented ways at the height of the pandemic, I fully expect Covid-19 to leave an equally tragic legacy. We have already seen this instability in the rising cost of goods, the scarcity of essential goods and the profound changes in the labor market.
So the real question is how we can create more doors at this critical time. One way may be to think carefully about the tax code and how it can facilitate charitable giving. It’s no coincidence that 47% of Americans said they would give more if they were allowed to claim an increased charitable donation deduction on their federal income tax. Imagine how our nation could turn the tide of need if nearly half the country increased its giving to people experiencing poverty and the organizations that serve them.
Here are three suggestions to help open doors to achieve this goal:
Door n°1: Make permanent the rule that allows Americans to take the standard deduction AND claim a charitable deduction. Last year, the IRS proposed a temporary rule that did not require taxpayers to itemize their receipts to claim a charitable deduction. This rule expired for 2022, meaning those who choose to take the standard deduction cannot claim a deduction for their charitable contributions. Why is this important? Because nearly nine out of 10 taxpayers claim the standard deduction and because the standard deduction doubled in 2018, the incentive to itemize has been further reduced. By expanding this rule in the future, which has made it easier for more Americans to deduct up to $600 in donations to qualifying charities, we can encourage 90% of taxfilers to increase their donations and offset their needs.
Door no. 2: relax the rules for donating assets appreciated as shares. It is also true that not all taxpayers are aware of the deductions currently available to them. Donating appreciated assets to charity is an often overlooked form of gifting that allows the taxpayer to avoid capital gains tax while deducting the fair market value of the gift. It also offers no tax burden on the donation for the charity receiving it. This type of donation has benefits for both parties and should be more widely promoted and simplified as an opportunity for taxpayers.
Door no. 3: Allow professional volunteer services to count as cash contributions. The IRS does not allow volunteer work to be considered a donation, even if that work is essential to the operation of charitable organizations. It’s definitely the Salvation Army. So I would recommend creating a new rule to deduct professional services up to some reasonable limit.
How would that work? Consider a CPA who agrees to help a nonprofit organization by managing its books and managing its taxes. Currently, these hours cannot be deducted, and the only deduction available would be for personal expenses related to volunteer hours. But if hours were deductible, we’d create an incentive for Americans to help in new ways, encouraging more volunteerism and freeing up more resources for the charity to focus on direct service, helping more people. in need.
These gates don’t exist at the moment, but it wouldn’t take long to build them. And I’m confident that once installed, the keys to American bounty would quickly unlock them. In no time, we would be opening new doors to give and offer new hope to those in need.
The United States of America is the most generous nation in the world, and our tax code should capitalize on that fact.
This article does not necessarily reflect the views of the Bureau of National Affairs, Inc., publisher of Bloomberg Law and Bloomberg Tax, or its owners.
Commissioner Kenneth Hoder is the national commander of The Salvation Army, the nation’s largest direct social service provider, and is a member of the Generosity Commission, a non-partisan, cross-sectoral group working to shape the future of giving and giving. civic engagement.
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