Business

Why top earners should make donations before 2026

In a significant shift in tax policy, starting next year, high-income earners in the United States will see a reduction in tax breaks for charitable donations, a change stemming from the 2017 Tax Cuts and Jobs Act, often referred to by former President Donald Trump as “one big beautiful bill.” This legislation aimed to simplify the tax code and stimulate economic growth but has also led to unintended consequences for charitable giving. Under the new rules, the itemized deduction for charitable contributions will be limited, meaning that high-income taxpayers will no longer receive the same tax benefits for their donations as they did previously. This change is expected to have a substantial impact on nonprofit organizations that rely heavily on donations from wealthy individuals.

Contextually, the 2017 tax overhaul nearly doubled the standard deduction, which led to fewer taxpayers itemizing their deductions. As a result, many high-income earners found themselves less incentivized to give to charity since the tax benefits associated with their contributions were diminished. For instance, prior to the tax reform, a high-income earner who donated $100,000 could deduct a significant portion of that amount from their taxable income, effectively reducing their tax burden. However, with the new limitations in place, the same donor may find that the tax savings do not justify the expense of their charitable contributions, potentially leading to a decline in overall giving.

Nonprofit organizations are voicing concerns about the long-term effects of this policy change, as many depend on the generosity of high-income donors. Experts predict that the reduction in tax incentives could lead to a decrease in charitable contributions, which may further strain the resources of nonprofits already facing challenges in the wake of the COVID-19 pandemic. As these organizations navigate the new landscape, they may need to adapt their fundraising strategies to ensure continued support for their missions. In light of this development, it is crucial for both donors and nonprofits to stay informed about the evolving tax landscape and consider how these changes may influence charitable giving in the future.

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