Deja Vu All Over Again – Backdoor Taxes on Charitable Giving?

As I was preparing for last week’s “Post Election Rundown”, I had a Deja Vu event – of a previous Deja Vu event no less! That’s Deja Vu All Over Again – right?

Was I imagining that I was bothered by two backdoor taxes on charitable giving years ago? During the previous administration?

And, then it dawned on me. The same staffers from the Obama admin were back looking for new ways to raise tax dollars (without anyone noticing….) in Biden’s official tax plan. Sound familiar? Not Deja Vu, just the same old song – if you don’t succeed, try try again…

Two of the biggest culprits for Backdoor Taxes on Charitable Giving (yep – on charitable giving) were the Pease Amendment and the 28% Deduction Cap on charitable giving (Pease was law for a long time until the 2018 Tax Bill nixed it and the 28% Deduction Cap kept popping up as a proposal during the Obama years and may have had some Republican supporters – never became law).

Here is one of my old posts from 2012 on the topic: https://plannedgivingadvisors.com/cap-deductions-uh-oh-here-we-go-again/

Pease – takes away a few percentages of the value of your deductions after reaching high income levels – so complicated that no one will notice.

28% Cap on Deductions – basically limits anyone in a tax bracket higher than 28% on the portion of a deduction above 28%. Let’s say you had $100,000 of deductions while your income tax bracket was 37%. Instead of saving $37,000 on those deductions (37%), you would now only save $28,000 – losing $9,000 of deduction savings per $100,000. I think that’s what it is but I will have to drink a cup of coffee against doctor’s orders to confirm as my brain is still having trouble with this one even though I remember hating it 8 years ago.

My theory is that since charitable giving is the most discretionary of deductions (you choose each year how much you want to give while other deductions are usually a result of various activities that you would do in any case), raising tax dollars by reducing the value of deductions is basically taxing charitable giving (for the most part).

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