The US tax system allows some taxpayers to reduce their taxes by making charitable donations, but many do not understand this provision very well.

In this brief, I review studies that suggest how raising public awareness of this tax provision could help increase charitable giving. This can be done by extending the charitable deduction deadline up to the day people file their taxes—an idea often called a “tax-day deduction.”

Why This Matters

Research shows that almost half of taxpayers who itemize deductions on their tax returns are not aware that charitable donations can reduce their taxable income. Furthermore, taxpayers often use their average tax rate as an estimate of their marginal tax rate, which leads many to underestimate how much charitable giving could reduce their taxes.

A taxpayer’s incentive to donate is related to their marginal tax rate—that is, the higher the rate, the greater the incentive to give. So when taxpayers underestimate their marginal tax rate, they often donate less because they underestimate how much it could reduce their taxes.

Key Takeaways

• Extending the charitable deduction deadline to tax filing day would allow taxpayers to consider the benefits of additional donation while calculating their taxes. Currently, a donation made in January 2025 can be deducted only when a taxpayer files their tax return in the spring of 2026. That means it would take more than a year for a taxpayer to see the effects of their charitable giving. By comparison, a tax-day deduction would let people who donate in April 2026 see a reduction in their taxes owed almost immediately, helping them become aware of their charitable deductions. Tax preparers or tax software could also help facilitate this by showing taxpayers how their taxes owed would change with additional donation.
• A tax-day deduction is tax-efficient for the government because it promotes charitable contributions without increasing the subsidy. Research on tax-day deductions implemented in the wake of a natural disaster showed that the policy increased charitable giving.

The benefits of a tax-day deduction outweigh the drawbacks. The 2017 Tax Cuts and Jobs Act substantially increased the standard deduction, reducing the share of taxpayers who itemize mainly to those with higher incomes. And the recently passed One Big Beautiful Bill Act has complicated the tax treatment of contributions by creating a new incentive with a ceiling and placing a floor under the old incentive. A tax-day deduction could help taxpayers understand which, if either, applies to them.