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
-
The Most Tax-Friendly States for Investing in 2025 (Hint: There Are Two)State Taxes Living in one of these places could lower your 2025 investment taxes — especially if you invest in real estate.
-
Want To Retire at 55? See If You Can Answer These Five QuestionsWho said you can’t retire at 55? If you say yes to these questions, you may be on your way to an early retirement.
-
The Final Countdown for Retirees with Investment IncomeRetirement Tax Don’t assume Social Security withholding is enough. Some retirement income may require a quarterly estimated tax payment by the September 15 deadline.
-
Standard Deduction 2025 Quiz: How Much Do You Really Know?Quiz Test your knowledge of IRS rules that impact how much money you keep in your wallet.
-
New Bill Would End Taxes on Social Security Benefits in 2026: What Retirees Should KnowTax Law Congress could look to high earners to help offset lost revenue and possibly shore up the Social Security program.
-
Cruise Lines Sue to Block Hawaii’s New Climate Tourism TaxState Tax Your vacation to the Aloha State could come at a higher price tag next year. Here’s why.
-
New $6,000 'Senior Bonus' Deduction: What It Means for Taxpayers Age 65-PlusTax Changes If you’re an older adult, a new bonus tax deduction could provide a valuable tax benefit. Here's how it works.
-
Claiming the Standard Deduction? Here Are 10 Tax Breaks For Middle-Class Families in 2025Tax Breaks Working middle-income Americans won’t need to itemize to claim these tax deductions and credits — if you qualify.
-
Are Trump Tariffs Legal? Three Things to Know About the Supreme Court CaseTax Law The outcome of this legal battle about tariffs will hit your wallet in one way or another.
-
Over Age 65? New $6,000 'Senior Bonus' Deduction Is Available Even If You ItemizeTax Changes If you’re an older adult, a new bonus tax deduction could provide a valuable tax benefit. Here's how it works.
