The History of Charitable Deduction

According to Wiki, “charitable giving is giving without receiving”. So is it really important to extend a benefit to the donor as a tax deduction? This question has crossed generations and created arguments in its path. The charitable deduction provision is almost 100 years old; one of the oldest in the tax code.

The War Revenue Act of 1917 included this provision so charities would survive World War I. Normally, people contribute to charities and educational institutions based on their discretionary funds, once all the bills are paid. At the time it was written, extensive new taxes on income and estates threatened those discretionary funds, leaving significantly less available to support worthy organizations.

The war, rather the effect of increased taxes and reduced exemptions created to support it, and educational institutions were deemed the catalysts for the new deduction in the Act. Due to tax levies, higher education faced a crisis. In August 1917 The New York Times wrote an article titled “The Conscription of Wealth” aimed at those opposed to the war and the government financial support required to sustain it. The article stated the social costs of the war, in that “it diminishes or dries up the springs of philanthropic eleemosynary and educational life” and duly noted “the Presidents of the colleges, whose incomes from tuition and dormitory fees will be notably lessened by the war service of so many collegians, so many ‘rich men’s sons,’ and sons of the well-to-do, are in grave perplexity.” After all, the article continued, “A rich man can spend only so much on himself and his family. Out of his surplus come his regular gifts for public purposes.”

Pleas urged if the deduction was not enacted, it would mean weaker charities and a bigger government. Arguments ensued with suspicion about the social influence of various charities and their exemption. However, the arguments were not influential enough to derail the drive for charitable tax preferences.

Still today, those same arguments and suspicions continue. Federal lawmakers continue to consider tampering with the tax deduction. Proponents of the deduction argue without it, America will lose an essential part of our economy and quality of life. And for those millions of individuals who rely on philanthropy, the government would have to financially support the vital services nonprofit organizations now provide.

Fortunately, we continue to benefit from the charitable tax deduction. As we enter a new season of tax preparation, take notice of the requirements set forth in the tax code regarding your tax donation substantiation. Every deduction is required to have documentation, be it a check, receipt or picture. And, there are progressively increasing levels of acknowledgement requirements depending on the amount of the contribution, starting at $250 through a required appraisal at $5,000. One last note to be considered, be wary that like items are aggregated when determining the documentation needed. Those “household items” add up over the course of the year. Be detailed in your receipt descriptions.