Both the federal and Colorado charitable deductions incentivize taxpayers to support the work of the more than 23,000 charitable nonprofit organizations throughout the state. These organizations strengthen communities throughout Colorado and augment public services by supporting the health, well-being, and quality of life of Coloradans.
How does 1359 benefit donors and nonprofits?
HB 18-1359 removes the $500 floor on Colorado’s charitable deduction.
Just like federal taxpayers who itemize and can take the federal charitable deduction, 1359 allows Colorado’s non-itemizing taxpayers to fully deduct their charitable contributions.
It also encourages increased giving by expanding the benefit of Colorado’s giving incentive to taxpayers unable to give more than $500 per year, which includes many lower-income households.
Background on Colorado charitable deduction
Colorado's itemizing taxpayers gave more than $3.9 billion in 2015, according to IRS data. 26 percent of Colorado’s taxpayers itemized their deductions and deducted charitable contributions. 74 percent of Coloradans received no federal tax benefit for their giving.
Colorado is one of a handful of states that partially addressed this inequitable tax treatment of itemizers and non-itemizers in 2000 by creating the Colorado Charitable Deduction (also known as the Colorado Charitable Contribution Subtraction).
About 10 percent of standard deduction filers, or 157,000 taxpayers, claimed the deduction and gave more than $234 million in 2013, per the Colorado Department of Revenue's Statistics of Income (see tables 20 and 21). Each $1 these taxpayers saved on their taxes leveraged $21 in giving.
Why is this bill important now?
The Tax Cuts and Jobs Act nearly doubled the standard deduction. The Tax Policy Center (TPC) projects that 11 percent of American taxpayers will itemize rather than 26 percent currently. This change is projected to reduce giving by up to $20 billion per year nationally (6.5 percent reduction).
In Colorado, doubling the standard deduction would primarily affect taxpayers with incomes under $100,000 by our analysis. These taxpayers gave $1.8 billion in 2015. If giving in Colorado is reduced by the same percentage, Colorado’s nonprofits would lose up to $250 million per year in donations.
Passing 1359 now would expand Colorado charitable giving incentive and engage more Colorado’s taxpayers in giving. It allows non-itemizers to fully deduct their charitable contributions, just like itemizers, and can help mitigate the impact of reduced charitable giving deducted on federal taxes.