There’s been a lot of talk about the Tax Cuts and Jobs Act (TCJA). As Kiplinger has reported, the Trump administration tax overhaul (also known as the 2017 “Trump tax cuts”) lowered marginal tax rates, almost doubled the standard deduction, and slashed some tax breaks. Some of the law’s provisions were set to expire in 2025.
Update: However, the GOP-controlled White House, Senate, and House have passed reconciliation legislation often called the "One Big Beautiful Bill" (OBBB that extends much of the TCJA.
In the year the TCJA became effective, 46 million filers stopped itemizing due to the standard deduction increase. Since itemized charitable contributions were no longer available to increase deductions for these filers, there was a period of volatility in charitable giving immediately before and after the TCJA was enacted, according to the Tax Foundation.
From just $107.88 $24.99 for Kiplinger Personal Finance
Be a smarter, better informed investor.
Sign up for Kiplinger’s Free Newsletters
Profit and prosper with the best of expert advice on investing, taxes, retirement, personal finance and more - straight to your e-mail.
Profit and prosper with the best of expert advice - straight to your e-mail.
But do itemized deductions directly correlate to gifts to charity? In what ways are the TCJA and charitable giving tied together?
Here are some ways the TCJA extension could help charities, and how you can give back to your local community.
Inflation is impacting charitable giving
According to Giving USA, charitable giving is currently up in terms of dollars, but down when adjusted for inflation. For example, in 2023:
- Individual giving increased 1.6%
- But when adjusted for inflation, donations had actually declined by 2.4%
High inflation typically affects individuals with lower incomes the most.
However, as income levels rise, more and more people make charitable gifts, according to Philanthropy Roundtable, a nonprofit philanthropist network.
Thus, in terms of charitable giving, high inflation can affect those who are more likely to give larger dollar amounts, like high- and middle-income households.
The Roundtable shows that middle-class individuals donate about 2-3% of their money annually, which is nothing to sneeze at, considering that the Pew Research Center reports about 51% of the U.S. population is middle-income.
Even if the relationship between charitable giving and inflation is complex, a negative relationship exists between inflation and monetary donations, as NPR reports.
So perhaps a better question would be: why hasn’t charitable giving declined more due to high inflation’s impact on most of the country?
The TCJA and high-income earners
High-income individuals compose about one-third of all individual gifts in the U.S..
And since high-earners are less likely to be affected by high inflation, TCJA savings can still be used for charitable purposes.
A recent report by the Tax Foundation shows that lower marginal tax rates, like those introduced with the TCJA, have a stronger positive effect on charitable giving than incentivized itemization.
The Foundation also reports that, when the TCJA increased the charitable contribution deduction rate from 50% to 60%, wealthier itemizers may have been encouraged to give more than they had previously.
But upper-income individuals make up only 19% of the U.S. population. So while the majority of folks do not have large amounts of disposable income, there may be more ways you can help slow the decline in inflation-adjusted giving.
More nonprofits but less charitable giving: How you can help
While giving, adjusted for inflation, is on a decline, there is a record-high number of nonprofits. And that number is climbing, according to the U.S. Bureau of Labor Statistics.
Per Giving USA, here are the nonprofit sectors that have seen more than 5% inflation-adjusted growth compared to last year:
- Education grew by 6.7%
- Foundations grew by 10.8%
- Public-society benefit (charities fundraising through government grants or other public means) grew by 7.2%
- Arts, culture, and humanities grew by 6.6%
Giving USA also reported that these segments coincided with the giving priorities of the wealthiest donors. So if you would like to help a charity that may not be a priority for high-income earners, here are a couple of ideas:
- Give to your community’s women’s shelter, toy drive, or food bank
- Volunteer at your place of worship, community hospital, or pet shelter
Data show the highest giving year of all time came just three years after the TCJA was enacted.
The Tax Policy Center estimates that 53% of taxpayers would see an increase in their tax burden if certain provisions in the TCJA had been left to expire.
So, it remains to be seen how these other key issues will be handled in the new year. Though charities may have a reason to cheer a TCJA extension — that is, if inflation goes down.
Related Content
-
Dow Climbs 559 Points to Hit a New High: Stock Market TodayThe rotation out of tech stocks resumed Tuesday, with buying seen in more defensive corners of the market.
-
Are You Saving Too Much for Retirement? Know These Surprising DownsidesYour money may be better served outside of a retirement account.
-
Emergency Tax Bill Ends $6,000 Senior Deduction and Tip, Overtime Tax Breaks in D.C.Tax Law Here’s how state tax conformity rules could immediately raise your income tax liability.
-
New RMD Rules: Can You Pass This Retirement Distributions Tax Quiz?Quiz Take our RMD quiz to test your retirement tax knowledge. Learn about RMD rules, IRS deadlines, and tax penalties that could shrink your savings.
-
Ten Retirement Tax Plan Moves to Make Before December 31Retirement Taxes Proactively reviewing your health coverage, RMDs, and IRAs can lower retirement taxes in 2025 and 2026. Here’s how.
-
The Original Property Tax Hack: Avoiding The ‘Window Tax’Property Taxes Here’s how homeowners can challenge their home assessment and potentially reduce their property taxes — with a little lesson from history.
-
Social Security Tax Limit Rises Again: Who Pays More in 2026?Payroll Taxes The Social Security Administration has announced significant changes affecting millions as we approach a new year.
-
Three Critical Tax Changes Could Boost Your Paycheck in 2026Tax Tips The IRS predicts these tax breaks may change take-home pay in 2026. Will you get over $1,000 in tax savings?
-
Trump’s 2025 Tax Bill: What’s Changing and How It Affects Your TaxesTax Law From standard deduction amounts to tax brackets and Medicaid cuts, here’s what individual filers need to know about tax changes in Trump's so called "big beautiful bill."
-
RMDs, Roth, and SS: Test Your Knowledge of Retirement Tax RulesQuiz Don't let the IRS catch you off guard. Take our quiz to reveal common retirement tax rules that could save (or cost) you thousands.
