Charities worry about potential tax-deduction cuts in ongoing fiscal cliff fight
Last Updated: 151 days ago
As President Barack Obama and House Republicans fight over taxes and the deficit, charities are worried about cuts in gift-giving because tax deductions on donations may be slashed.
Any change to the tax law will rebalance the equations that influence how big a check donors write and what programs charities offer.
Charities worry that if proposals to lower or eliminate the charitable donation deduction are enacted, big donors will give less in the future. And accountants are advising their high-net-worth clients to give more this year -- while the current deduction rules are still certain.
"For someone who constantly gives year after year and gives approximately the same amount, if they have the wherewithal to double up or triple up on their contributions ... we're suggesting they do it this year," said Carolyn Mazzenga, partner in the accounting firm Marcum LLP.
In general, when a person gives money to a charitable organization and receives nothing in return, that amount of money can be subtracted from adjusted gross income, which in turn lowers the taxes owed. Tax law already caps the deduction at 50 percent of adjusted gross income.
Accountants said any changes that reduce the tax deduction on donations would hit high-earning donors -- households earning more than $250,000 a year, whose taxes could go up next year as part of a deal to avoid the "fiscal cliff."
The fiscal cliff is a package of automatic tax hikes and spending cuts that will go into effect early next year if Congress and the president don't reach an agreement to reduce the budget deficit. Any agreement is likely to include a mix of targeted spending cuts and tax hikes -- and possibly a cap on income tax deductions.
Obama has proposed, for filers earning $250,000 a year or more, a cap on deductions -- which include charitable donations as well as state and local taxes and home mortgage interest, among other things -- at 28 percent of adjusted gross income.
Even a deal on the fiscal cliff that doesn't touch charitable donations now won't end the pressure to raise tax revenue by ending the deduction in the future. A cliff deal won't end future budget deficits, or the pressure to close them.
Scott O'Sullivan, an accountant at Margolin, Winer & Evens LLP in Garden City, N.Y., has told clients that they're probably better off making large contributions before the end of the year.
"If somebody's on the fence and making a $100,000 charitable contribution in December or January, I'm recommending they take it in 2012 where they absolutely know they can get the tax deduction associated with that," he said.
That people are monitoring tax laws to time their donations proves how important the tax deduction is, said Diana Aviv, president and chief executive of Independent Sector, a group that represents nonprofits. Last week, Aviv argued in an opinion piece in The Wall Street Journal that the deduction is a "crucial incentive" that gets people to give who otherwise might not and to increase the size of gifts.
The possibility that large donors might curtail gifts if the federal government offered less of a subsidy has mobilized lobbying efforts among both charitable organizations and donors with a common message, Aviv said. "Don't visit pain on these organizations, because it's not the rich that will suffer, it's the organizations and, more importantly, the people they serve who will suffer," she said.
Charitable organizations are skittish about publicly wading into the tax debate. Aviv said she's heard recently from member organizations that large donors have gotten angry at charities that have advocated for keeping the deduction rules untouched and have said they would stop giving.
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