Don't Itemize? Doesn't Matter. You're Getting a New Tax Break.

The tax bill signed last week by President Donald Trump is a mixed bag of good and bad news for people who make charitable gifts.

Starting next year, people who itemize deductions will get a haircut on their charitable deductions, while those who claim the standard deduction can deduct some gifts for the first time

Under current law, the only way to be able to claim a charitable deduction is if your deductible expenses exceed the standard deduction and you itemize.

But in recent years it has been difficult to accrue enough deductible expenses to exceed the standard deduction, so most people have claimed the standard deduction and have gotten no tax benefit from their charitable gifts.

This has been the case since 2018 when the Tax Cuts and Jobs Act substantially raised the standard deduction and limited deductible expenses.

Not only was a $10,000 cap enacted on deductions for state and local taxes (SALT), but deductible expenses were scaled back. For example, miscellaneous expenses such as fees for investment advisory services were eliminated and limits on mortgage interest deductions were tightened.

Between 2017 and 2020, the percentage of taxpayers who itemized and could get any benefit from charitable gifts dropped to 9% from 31%, according to the Tax Policy Center. The percentage itemizing should rise again with the new tax law.

It bumped the SALT cap to $40,000, creating a huge deduction for millions of Americans. "With the SALT cap at $40,000, more people are going to find they will itemize," says Jim Daniels, a managing director at UHY.

But millions will still take the standard deduction and won't itemize. Effective for 2025, the standard deduction was raised to $31,500 from $30,000 for couples filing taxes jointly, and to $15,750 from $15,000 for single and other filers.

A new charitable credit

The bill establishes a new nonrefundable credit for cash contributions to charities whose primary function is to grant scholarships for students attending primary or secondary school. The maximum credit is $1,700.

While a deduction reduces your taxable income, a credit is a dollar-for-dollar reduction in the tax you owe.

"Under current law, you can get a deduction for making a donation to a scholarship granting organization if you itemize," Daniels says. "Starting in 2027 you will be able to get a credit, which is more valuable."

For subscribers, read the full article published by Barron's.