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Edwards Wildman Addresses Charitable Giving: 2012 vs. 2013
No Additional Clarity from Administration and Congress on Tax Law as 2013 ‘Fiscal Cliff’ Approaches
December 6, 2012
Laurie J. Hall
The continuing failure to address potential tax law changes on January 1, 2013, is creating confusion and uncertainty for businesses and individuals -- specifically in the area of charitable giving. Edwards Wildman clients ask: Should I donate in 2012 or wait until 2013?
The Bush tax cuts, currently set to expire on January 1, 2013, have been a source of turmoil for Congress since President Obama's reelection, and will directly affect any charitable gifts made this year or next. As the expiration date closes in, Congress and the administration have made little movement towards a bipartisan agreement, leaving would-be donors with three possible scenarios, according to Edwards Wildman tax experts.
Scenario 1: The Bush Tax Cuts Expire
- The highest marginal rate will increase from 35 percent to 39.6 percent on January 1, 2013. Therefore, a charitable deduction made in 2013 would have a greater impact, sheltering income taxed at a higher rate, effectively making a 2013 gift more valuable.
Scenario 2: Tax Limitations are Reinstated
- Limitations on itemized deductions could be imposed for high income taxpayers, including charitable deductions. One way this could happen would be to reinstate the limitations in effect in 2009. As a result, high income taxpayers (individuals earning $166,800 or more in 2009, which has also been indexed for inflation) could lose a significant deduction, and may want to accelerate gifts in 2012. Taxpayers whose AGI will not exceed the applicable threshold may want to wait until 2013 to shelter from higher tax rates.
Scenario 3: The Bush Tax Cuts are Extended
- If the administration and Congress act before the end of the year to extend the Bush tax cuts, the general rule of taking deductions sooner rather than later would apply.
"These tax law changes - or lack thereof - will have a significant impact on plans for charitable giving, affecting both high income individuals and organizations on the receiving end," said Laurie Hall, partner at Edwards Wildman. "If these laws aren't figured out, we could see many charitable organizations high-and-dry in 2013."
Interested in learning more about charitable giving in 2012? Click here for Edwards Wildman's client advisory or get in touch with our team directly by visiting the Edwards Wildman website.
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