Edwards Wildman Addresses Charitable Giving: 2012 vs. 2013

No Additional Clarity from Administration and Congress on Tax Law as 2013 ‘Fiscal Cliff’ Approaches

BOSTON--(BUSINESS WIRE)--The continuing failure to address potential tax law changes on January 1, 2013, is creating confusion and uncertainty for businesses and individuals – particularly in charitable giving. Edwards Wildman clients ask: Should I donate in 2012 or wait until 2013?

“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”

The Bush tax cuts, currently set to expire on January 1, 2013, are a source of turmoil in Washington and will directly affect any charitable gifts made this year or next. As the expiration date approaches, there is little movement towards an 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, 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 Bush tax cuts are extended, 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 the charitable giving issue? Click here for Edwards Wildman's client advisory or get in touch by visiting the Edwards Wildman website.

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