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Trump’s tax deduction change upsets charities

By Kay Bell ·
Tuesday, September 20, 2016
Posted: 11 am ET
Trumps tax deduction change upsets charities

Donald Trump's new tax plan would lower the amount of itemized deductions that taxpayers could claim, upsetting charities. ©lev radin/

A group that advocates for nonprofit organizations is not very charitable in its analysis of Donald J. Trump's latest tax proposal.

The Alliance for Charitable Reform says the Republican presidential candidate's decision to change his original tax plan so that it would limit the itemized deductions of higher income taxpayers hits exactly those donors that account for the bulk of individual giving.

Charitable changes

In his original tax proposal, Trump called for a limit on the amount of itemized deductions a filer could claim except for charitable contributions and mortgage interest. That would have let donors take full tax credit for their gifts to Internal Revenue Service-approved 501(c)(3) nonprofits.

Many in the nonprofit community, however, feared that proposal was too good to be true, since Trump also said when he released his first tax plan in the fall of 2015 that he wanted to pay for his proposal by eliminating loopholes used by the very rich.

Since big-dollar donors tend to be in the upper income group, charitable groups were on high alert.

Their trepidation was warranted.

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Cutting tax deductions and tax plan costs

Analysis of Trump's original tax plan by the Tax Policy Center revealed that it would cost nearly $10 trillion over 10 years. So the Trump camp revised his initial proposal.

Rather than reinvent the tax plan wheel, the GOP presidential candidate decided to incorporate into his plan many of the tax reform ideas released this summer by the House Republican leadership. The change that got most of the attention when Trump announced his plan changes on Aug. 8 was the elimination of his original 0% tax rate.

But in order to whittle down the cost of his new tax proposal, which is now pegged at almost $6 trillion over a decade by the Tax Foundation, Trump also made some other policy modifications, including the cap on itemized deductions that has upset the Alliance for Charitable Reform.

He would, as the nonprofits feared, cap the amount of all itemized deductions, including charitable gifts, that taxpayers could claim.

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Schedule A limits already in place

Taxpayers already face a limit on their overall itemized deduction amount on Schedule A when they make more than a certain amount for their filing status.

For the 2016 tax year, that's $259,400 for a single taxpayer; $285,350 for a head of household; $311,300 for a married couple filing a joint return; and $155,650 when a married taxpayer opts to file a separate tax return. 

Trump would erase the current itemized deduction limits and replace them with lower amounts. The GOP candidate's plan would trigger the lower itemized tax deduction amount when taxpayers' adjusted gross incomes hit $100,000 for single filers or $200,000 for married couples filing jointly. 

I'm taking a dangerous step when it comes to taxes in general and with regard to the GOP White House seeker in particular, but I'm presuming the married filing separately limit would be half the joint filing limit. And while Trump didn't specify, I'm also presuming the $100,000 income limit for singles also would apply to single parents filing as head of household.

That's a dramatic cut in the value of higher income taxpayers' itemized deductions.

And it has upset the Alliance for Charitable Reform, which is a project of the 501(c)(3) tax-exempt group The Philanthropy Roundtable.

"We are surprised and disappointed that Mr. Trump caps the charitable deduction in his most recent tax reform proposal," said Sandra Swirski, executive director of the Alliance, in a statement on the group's website. "Cuts, caps and limitations on the deduction mean less money for charities and those they serve. That can't be what Mr. Trump intends. The charitable deduction is not a loophole, it's a lifeline." 

Swirski says the "full scope and value of the charitable deduction" is critical, not just for philanthropic taxpayers, but also for the nonprofits that receive the donations and the communities they serve.

"It is unique among all other credits and deductions because it encourages individuals to give away a portion of their income for the benefit of others,” says Swirski.

Would Trump's lower limit on itemized deductions affect you? Would it change whether you give at all or how much you currently give to charity?

Keep up with federal and state tax news, and find filing tips and calculators at Bankrate's Tax Center.

And be sure to follow me on Twitter: @taxtweet.

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September 28, 2016 at 12:30 pm

Do YOU really want fairness. Then why not have EVERYONE rich or poor pay lets say 10% across the board. If you make $50,000 a year you pay $5,000 in taxes, done; if you make a $120,000 a year you pay $12,000 in taxes, done; if you make $5,000,000 a year you pay $500,000 in taxes, done. You get the idea. Let the Feds., States, and Local governments figure out how to divide up their share of the 10%. This eliminates loop holes, eliminates probably the biggest part of the IRS, uncomplicates tax preparations (saves you money if you need H&R Block or a tax acct.), definitely speeds up the time it takes to prepare taxes. In the Bible God says to tithe him 10%, I figure if 10% is good enough for God, then 10% definitely good enough for our Govenments.

September 20, 2016 at 2:46 pm

Where is the outrage from single mothers especially those that make over $125,000 and have all teenage children? Eliminating head of household has been shown for lower earning single parents, but it's big money when your in that upper income bracket. Big deal eliminating the AMT with his plan, I am better with the AMT now then going to 33%. I think the AMT is just plain wrong, but if I had a choice I would continue that ridiculous tax rate. This would increase my tax by 7%. That 7% is thousands and with college facing my teenagers, that is too much. Show numbers with multiple kids. Higher earners already have itemized deductions (which are limited with the AMT now) that are more than his measly increase in the standard deduction. Single parents have the same expenses as married families, but with one income. In some cases, child support is a joke when the single parent raising the kids is successful. Successful single parents that are sole supporters for their kids are penalized from each direction not to mention increased healthcare costs.

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