Monday, November 15, 2010

Donors Affected by Tax Law Uncertainty

The counterpart to a recent blog entry on charities dealing with uncertainty in tax law, USA Today reports that donors are facing similar uncertainty resulting in a potentially hurtful situation for charities.  Because of Congress's failure to deal with expiring tax cuts and other tax breaks, the typically fruitful fourth quarter for charities may not occur this year.  The article attributes potential donor reluctance to make tax-driven fourth quarter donations on several uncertain tax law changes:  (i) Congress's potential extension of the tax-free $100,000 IRA rollover to charities that expired on December 31, 2009; (ii) the uncertainty of the federal estate tax; and (iii) the Bush tax cuts dilmena - whether tax rates will increase for individuals earning over $200,000 and couples earning over $250,000.

With respect to the estate tax, a Congressional Budget Office study postulated that a permanent estate tax repeal could decrease charitable contributions up to 12%.  If individual income tax rates increase in 2011, it might result in higher-income taxpayers delaying charitable contributions until next year when such gifts would be more tax advantageous.  Although charitable giving is not entirely based on reducing taxable income, tax law can affect timing, amount, and manner of gifts according to the Center on Philanthropy.

NAM

http://lawprofessors.typepad.com/nonprofit/2010/11/donors-affected-by-tax-law-uncertainty.html

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