Decline in Act of Charitable Giving Sparks Calls for Tax Code Update

As baby boomers face required minimum distributions from retirement accounts, arcane IRS rules hinder the redirection of funds toward act of charitable giving, sparking calls for tax code reform to encourage such acts. (Photo: psmag)

Impact of Tax Changes on Act of Charitable Giving: A Deep Dive into the Decline

According to source, charitable giving in the United States has experienced a decline, falling 3.4% in 2022, with individual giving seeing a greater decrease of 6.4%. This decline is attributed to various factors, including a turbulent stock market and the ongoing effects of the Tax Cuts and Jobs Act of 2017, which led 90% of taxpayers to opt for the standard deduction, eliminating incentives for itemized act of charitable giving.

As baby boomers enter their 70s, they face required minimum distributions from their retirement accounts, totaling an estimated $14 trillion. However, arcane IRS rules hinder the redirection of funds toward act of charitable giving to nonprofits.

Withdrawals from retirement accounts are taxed as income, and despite not mitigating the tax burden, few retirees benefit from the act of charitable deduction due to the decline in itemization.

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Navigating Tax Restrictions: Exploring the Limits on Act of Charitable Giving

An exception allows those with personal IRAs to make “qualified act of charitable giving” directly to charities, avoiding taxation. However, this rule does not extend to employer-sponsored 401(k)s or 403(b)s, which hold over $6 trillion. Additionally, retirees cannot direct their required distributions to donor-advised funds (DAFs), a growing vehicle for act of charitable giving.

The logic behind these limitations is unclear, as funds in DAFs can only be used for act of charitable purposes, much like those in personal IRAs. With 1.2 million DAFs in existence, a 28.5% increase since 2017, the tax code fails to incentivize the act of charitable giving effectively. Calls for updating the tax code to align with modern saving practices and encourage act of charitable giving have emerged in response to these restrictions.

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