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How the IRS Can Unlock the Tax Code to Open American Generosity

May 17, 2022, 8:45 AM

I have long believed that Americans naturally want to help people in need. I’ve seen that generosity firsthand in my decades of service with the Salvation Army, and I’ve always felt that this deep-seated impulse to give is the product of seven factors, or “keys.”

The desire to be generous arises from a historical awareness of the importance of giving in our nation’s history, a recognition that we each have a part to play in sustaining that heritage, gratitude for some kindness in our own past, a belief that our giving will make a difference, compassion for those in need, trust in the institution to which the gift is made, and the rush of joy that comes simply from having done something good for someone else. These keys come into play every year at Salvation Army red kettles across the country, and they never fail to inspire me.

But for any key to work, it needs a door. So I’ve also come to believe that our nation should provide more opportunities for individuals to use those keys, thereby unlocking new opportunities to build the better future for which we all work and pray.

Today, the generosity of the American public is needed more than ever. The pandemic monster with which we have all contended for more than two years has a long tail, and it has devastated people in need. It was only after the Great Recession of 2007 to 2009 that we at Salvation Army saw its full economic impact, with people living in poverty for years after the recovery began. Although Americans clearly responded in unprecedented ways during the height of the pandemic, I fully expect that Covid-19 will leave a similarly tragic legacy. We have already seen that instability in the rising cost of goods, the scarcity of essential items, and the profound changes in the job market.

The real question, therefore, is how we can create more doors at this critical time. One way can be to thoughtfully consider the tax code and how it can make charitable donations easier. It’s not insignificant that 47% of Americans have said they would give more if they were allowed to take an increased deduction for charitable giving on their federal income tax. Just imagine how our nation could turn the tide of need if nearly half the country increased its giving to people in poverty and the organizations that serve them.

Here are three suggestions to help open doors to achieve that goal:

Door No. 1: Make permanent the rule that allows Americans to take the standard deduction AND claim a charitable deduction. Last year, the IRS offered a temporary rule that did not require taxpayers to itemize their receipts to claim a charitable deduction. That rule has expired for 2022, meaning that those who choose to take the standard deduction cannot claim a deduction for their charitable contributions. Why does that matter? Because nearly nine in 10 taxpayers claim the standard deduction, and because the standard deduction doubled in 2018, the incentive to itemize has been further reduced. By extending this rule in the future—which allowed more Americans to easily deduct up to $600 in donations to qualifying charities—we can provide an incentive for 90% of tax filers to increase their giving and help offset need.

Door No. 2: Ease the rules for donating appreciated assets like stock. It’s also true that not all taxpayers are aware of deductions that are currently available to them. Donating appreciated assets to a charitable organization is an often-overlooked form of giving that allows the taxpayer to avoid capital gains tax while also deducting the fair market value of the donation. It also offers no tax burden on the gift for the receiving charity. This kind of giving has advantages for both sides and should be more widely promoted and simplified as an opportunity for taxpayers.

Door No. 3: Allow professional volunteer services to count as cash contributions. The IRS does not allow volunteer work to count as a gift even though that work is essential for charitable organizations to operate. It certainly is at Salvation Army. So I would recommend creating a new rule that allows professional services to be deductible up to a certain reasonable limit.

How would it work? Consider a CPA who agrees to assist a nonprofit by managing its books and handling its taxes. Currently, those hours can’t be deducted, and the only available deduction would come from out-of-pocket expenses related to the volunteer hours. But if the hours were deductible, we would create an incentive for Americans to help in new ways, encouraging more volunteerism and freeing up more resources for the charity to focus on direct services, thereby helping more people in need.

These doors don’t exist right now, but it wouldn’t take long to build them. And I’m convinced that, once installed, the keys to American generosity would quickly unlock them. In short order, we’d be opening new doors for giving and offering new hope for people in need.

The United States of America is the most generous nation in the world, and our tax code should capitalize on that fact.

This article does not necessarily reflect the opinion of The Bureau of National Affairs, Inc., the publisher of Bloomberg Law and Bloomberg Tax, or its owners.

Author’s Information

Commissioner Kenneth Hodder is the National Commander of The Salvation Army, the largest direct provider of social services in the country, and is a member of the Generosity Commission, a nonpartisan, cross-sector group working to shape the future of giving and civic engagement.

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