The charitable contributions deduction has been one of the most widely used and most lucrative tax breaks available to American taxpayers for many years, with nearly 37 million taxpayers taking advantage of it in a recent tax year.
However, one key provision in the Tax Cuts and Jobs Act could dramatically change this. While the deduction itself was preserved, it's likely that far fewer Americans will be able to deduct their generous contributions to charity in the future. Here's a look at how much Americans give to charity, and how this could be affected going forward.
The average American's charitable contributions
A total of 36.95 million tax returns claimed a deduction for charitable contributions made during the 2016 tax year, the most recent year for which data is available. And to be clear, these are the tax returns Americans filed in 2017.
The average charitable deduction among those nearly 37 million tax returns was $5,508. This was up slightly over the $5,491 average deduction from the previous year.
By income level
Charitable contributions vary tremendously among income brackets, so here's a look at how much the average American contributes to charity by income level:
Income Range (AGI)
Average Charitable Contributions Deduction
$250,000 or more
Data source: IRS preliminary 2016 data. Figures are rounded to the nearest dollar.
Why this is important to know
While it's certainly interesting to see how much money Americans donate to charity, this data has a practical application as well.
Here's one tax fact many Americans don't realize: The IRS knows how much the average person of your income level donates to charity, pays in mortgage interest, and spends on medical expenses. If your deductions in any area are significantly above-average, it could be a red flag to the IRS, and could increase your chances of an audit. In other words, if you earn $75,000 and claim a $6,000 charitable contributions deduction (nearly twice the average for your income bracket), it could prompt a closer look from the IRS.
To be perfectly clear, you should take every penny worth of charitable deductions to which you are entitled. Just be prepared to back up your claims -- especially if yours might stand out to the IRS.
One big caveat
It's important to realize that this data only includes taxpayers who donated to charity and also chose to itemize deductions on their tax returns.
The deduction for charitable contributions is only available to those who itemize, and this only includes about 25% of the population each year. To be sure, many taxpayers who don't itemize deductions have certainly contributed to charity -- we just have no way of knowing how much they give.
How could charitable contributions change as a result of tax reform?
The biggest change in the Tax Cuts and Jobs Act that could affect charitable giving is the near-doubling of the standard deduction to $12,000 for single taxpayers and $24,000 for married taxpayers filing joint returns.
Here's why this matters. I already mentioned that about one-fourth of taxpayers itemize deductions each year. Well, the higher standard deduction is expected to cut this number dramatically . Early estimates predict that just 5% of taxpayers will benefit from itemizing going forward.
Because of this, not as many Americans will qualify for a charitable deduction, and those who do will generally be those who give larger amounts of money. And it's also possible that charitable contributions will decrease somewhat -- after all, the tax benefits are not the only reason Americans give to charity, but it's certainly an incentive in many cases.
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