Episode 20: Effects of Tax Reform on Itemizers
Fresh Research podcast

The number of taxpayers who itemized last year has been in steep decline, according to the latest Internal Revenue Service (IRS) data. Why? And why is that important? Well, most charitable giving in the U.S. comes from itemizers. The Tax Cuts and Jobs Act of 2017 nearly doubled the standard deduction. Fewer than 1 in 10 taxpayers itemized in 2018, compared with about one-third before tax reform was enacted. The percentage of filers claiming a charitable deduction also plummeted, from 24 percent in 2017 to 8.5 percent in 2018.

Jon Durnford

Those numbers come from the paper, “Lost Your Charitable Deduction in 2018? You are not alone. The Effects of the 2017 Tax Reform on Itemization Status and the Charitable Deduction,” by Jon Durnford of Datalake Nonprofit Research and James Andreoni, Ph.D., a distinguished professor of economics at the University of California, San Diego.

“Charitable deductions also declined in magnitudes mirroring the loss of the charitable deduction. Perhaps surprisingly, all income groups saw significant reductions in charitable deductions. Low- and middle-income households effectively eliminated from any tax benefits,” according to the paper.

The data seem to at least partly fulfill predictions by public policy organizations about how tax reform proposed at the time might impact charitable giving. Estimates of how many taxpayers might itemize post-tax reform ranged from 16 million to 20 million. The number of taxpayers who itemize has dropped across all income levels, but particularly among those with Adjusted Gross Income (AGI) of between $50,000 and $250,000. We discuss what that could mean for charitable giving and what nonprofits should know.

The financial impact may take several more years to figure out, with early projections possible in 2019, according to the paper. “Given that we know donors tend to respond more the existence of a charitable subsidy than to the actual size of the subsidy, this could indicate fall off in donors in the years to come.”