The September 9, 2010 edition of the Chronicle of Philanthropy reported that the ongoing uncertainty over tax rates is prompting an increase in charitable giving. That trend is expected to continue through year end.
Here is the quandary. In 2011, income tax rates are expected to increase—potentially significantly. Those increased tax rates will predictably lead to less disposable income.
For some donors, the best way to fulfill charitable commitments is to give now when tax rates are lower. Lower tax rates mean more disposable income. Thus, a donor can increase their giving now while they have disposable income.
The law allows a person to give up to 50% of their income in any one year. Some donors may want to be at that level this year. For a donor who is seeking to fulfill a multi-year pledge, the best option may be to use a donor advised fund. A donor advised fund allows a donor to make a 2010 contribution, and take a deduction even though the distribution may not occur until 2011 and beyond.
Income tax rates are projected to go from 33% to 36% while capital gain rates are expected to go from 15% to 20%. President Obama’s 2011 budget still calls for a cap of 28% on itemized deductions for high income brackets. Some states are already moving to enact such caps.
William F. High is the President/General Counsel for the Servant Christian Community Foundation (www.servantchristian.com). Servant’s mission is to inspire, teach and facilitate revolutionary biblical generosity. He may be reached at email@example.com.