The Issue: Charitable Tax Deduction
Tax reform debates and mounting federal deficits have put charitable tax deductions onto the chopping block as a possible way to increase revenue for the federal government. This would negatively impact nonprofits who rely on the deductions as an incentive for donors to give generously. Similarly, artists and writers have lost their ability to claim the full value of works the works of art they donate, which has resulted in a sharp decline in such donations. Americans for the Arts tracks proposed legislation in order to prevent further losses in deductions and the advocate for the re-instatement of artists' and writers' ability to claim deductions for donated works of art.
Focus Forward Toward Solutions
Keeping Charitable Tax Deductions
2017 marks the 100th anniversary of the charitable contribution deduction! Since 1917, contributions made to 501(c)(3) nonprofits have been tax-deductible, in part as result of wide recognition of nonprofits’ benefit to the public good. The nonprofit arts sector relies on charitable gifts from donors accross the economic spectrum; for example, approximately 40% of financial support for nonprofit performing arts organizations is derived from charitable giving.
While the comprehensive tax reform law enacted in 2017 preserved the charitable deduction for those who itemize their tax returns, the number of itemizers has fallen dramatically, reducing the number of Americans eligible to claim the charitable reduction. In 2020, the Coronavirus Aid Relief and Economic Securities Act, also known as the CARES Act, expanded the charitable deduction to non-itemizers, allowing for a universal above-the-line charitable deduction of up to $300 per individual. It also increased the deduction for qualified charitable contributions made by itemizers from 60% of their adjusted gross income to 100%.
Current advocacy efforts aim to further the strides made under the CARES Act by increasing the above-the-line deduction for charitable giving on federal income taxes valued at up to one-third of the standard deduction. The bipartisan Universal Giving Pandemic Response Act (S.4032) and the companion House bill H.R.7324 would both allow non-itemizers to deduct from their gross income charitable contributions made in 2019 and 2020. Americans for the Arts supports these efforts, as charitable contributions are especially important for arts organizations given the loss of ticket and programming revenue incurred by coronavirus pandemic.
Regaining Fair Deductions for Artists and Writers Making Gifts
Prior to 1969, artists, writers, and composers were allowed to take a fair-market value deduction for their works donated to a museum, library, or archive. In 1969, Congress changed the law, and artists could only deduct the cost of materials used. The impact on gifts made to cultural institutions was immediate and drastic:
- The Museum of Modern Art in New York received 321 gifts from artists in the three years prior to 1969; in the three years after 1969 the museum received 28 works of art from artists—a decrease of more than 90 percent.
- The biggest loser was the Library of Congress, which annually received 15–20 large gifts of manuscripts from authors. In the four years after 1969, it received one gift.
Evidently, the ban on artists deducting the market value of donated works disincentivizes them from making gifts to cultural institutions. This in turn harms the public by limiting the amount of accessible contemporary artwork and neglecting an important part of our country's cultural heritage.
The Senate has passed artists deduction legislation five times in previous years which would allow taxpayers who create literary, musical, artistic, and scholarly compositions or similar property a fair-market value tax deduction for contributions to certain tax-exempt organizations, but the bills have not been reviewed by the House. In 2019, Rep. John Lewis (D-GA) reintroduced the Artist-Museum Partnership Act (H.R.1793), which would allow artists to take an income tax deduction for the fair market value of their work when they donate it to charitable collecting institutions. Americans for the Arts supports these bills!
- Find more details in the Tax Policy (pdf) and Tax Fairness (pdf) Issue Briefs in the Congressional Arts Handbook.
- Key Senate and House Committees for tax reform