In the aftermath of the devastating earthquake in Haiti many Americans are donating to organizations that are engaged in relief efforts for the earthquake victims. Charitable contributions are deductible from income (assuming you itemize your deductions) when you file your taxA tax is a mandatory payment or charge collected by local, state, and national governments from individuals or businesses to cover the costs of general government services, goods, and activities. es for the year you made the contribution. This means that if you make a donation in 2010, you can deduct it from your 2010 income taxes, which you will file in April 2011. A bill passed by the House today would accelerate this process for contributions made for Haiti earthquake relief. Instead of having to wait until 2011 to deduct the 2010 contributions the bill would allow the deduction against your 2009 income taxes (which you will file in April of this year). According to Rep. Earl Blumenauer (D-Ore.) “It’s a simple gesture but it will encourage giving in this challenging economy.”
Howard Gleckman at the Tax Policy Center gives his two cents on the bill currently making its way through Congress:
Well-intentioned as it may be, the measure is wrong-headed and likely to create more problems than it solves.
The bill, sponsored by both Committee chair Charlie Rangel (D-N.Y.) and ranking Republican Dave Camp (R-MI) would allow those who give this year to take a deduction in the current filing season and not have to wait until April 2011. On its face it sounds good, but….
The proposal won’t help the two-thirds of taxpayers who take the standard deductionThe standard deduction reduces a taxpayer’s taxable income by a set amount determined by the government. It was nearly doubled for all classes of filers by the 2017 Tax Cuts and Jobs Act as an incentive for taxpayers not to itemize deductions when filing their federal income taxes. since it only accelerates itemized deductionItemized deductions allow individuals to subtract designated expenses from their taxable income and can be claimed in lieu of the standard deduction. Itemized deductions include those for state and local taxes, charitable contributions, and mortgage interest. An estimated 13.7 percent of filers itemized in 2019, most being high-income taxpayers. s. Even among itemizers, those millions of givers who are contributing $10 by text message are not going to care much about whether they can write off those few dollars this year or next.
Those who might benefit—relatively high-earning itemizers who give substantial gifts—can easily address this cash flow problem under current law. All they’d need to do is change their withholdingWithholding is the income an employer takes out of an employee’s paycheck and remits to the federal, state, and/or local government. It is calculated based on the amount of income earned, the taxpayer’s filing status, the number of allowances claimed, and any additional amount of the employee requests. or estimated tax payments to reflect any unusually large gifts to Haiti relief.
Why does Congress want to encourage people to give to Haiti as opposed to other equally important causes? I’m not downplaying the Haitian catastrophe in any way. But do Haitians need more help than, say, 2 million displaced Somalis? Is a homeless family in Port au Prince more homeless than a family in Congo, where a civil war has killed five million and left another 2.5 million in camps? And are we sure that Haiti-related charities (among which the bill does not distinguish) are all worthy of this extra tax incentive–modest as it may be.
By all means help Haiti. It needs your assistance. But don’t be surprised if congressional micromanagement of your good intentions turns out to be much less helpful than the bill’s sponsors would like.
For our take on the charitable deduction, see these blog posts and this paper: Charities and Public Goods: The Case for Reforming the Federal Income Tax Deduction for Charitable Gifts.Share