deduction caps

Still wondering what’s the best year-end giving advice?

At this point – with only 3 business days left in the year and the country headed towards what I coined “Tax Doomsday” in March this year (when very few others were concerned) – there is not much left to say.

On donors advancing their gifting, clearly donor advised fund (DAF) programs benefited from all of the talk about capping deductions.  My friend Bryan Clontz at the Dechomai Foundation (a DAF dedicated to accepting non-cash/unusual assets) reported that they tripled their best year with over $75 million in DAF contributions this year.  Fidelity and Schwab DAFs already reported their stellar years to the Wall Street Journal.

So, if you are one of the few working – as I am (not sure how planned giving fundraisers can justify taking off at this time of the year) – and you have donors talking to you about these issues, here is what I think the advice is:

For those considering $1 million or greater sized gifts (or anywhere near that level) in 2013 and beyond, you may want to advance those gifts in any way you can.  The top tax bracket donor will easily lose over $40,000 in deduction rebates (actual cash loss) if they tamper with deduction caps.  In a worst case (for the donor) scenario, a donor loses over $100,000 in deductions on such sized gifts (if a 28% cap on deduction is passed).  See what I have written about over the past few weeks: capping deductions still is an attractive option to Congress if they actually hammer out a new tax deal.

For everyone else, donors should feel free to gift this year (and get the tax benefits now) and/or plan on gifting next year (when it may or may not be worth more).  There is no way to guarantee what will be with the Fiscal Cliff – that is why those wavering on their year-end gifts should go ahead and at least receive the benefits they know are available.

For all of the build up on these issues, I feel a bit of a let down. There is nothing exciting to report – just encourage your donors to stay the course and see what happens in 2013.  Once 2013 kicks in though, and all of the doomsday tax scenarios become a reality, I am sure I will be back with more exciting posts!  And, reasons why fundraisers need to get their planned giving houses in order!

A more positive twist for charitable deduction going into the final week

Big time correction in order from my previous post – the same day I posted last week on a  mysterious Yahoo story citing that deductions were getting capped at 28%, the Chronicle of Philanthropy posted a more positive story about the Obama administration’s approach to this topic – click here to see it.  In short, it may be that the administration is backing off reducing the cap on charitable deductions to 28% – saving that one for other deductions – but capping charitable deductions at 35% (so it only effects those in higher than 35% brackets).  Thank you to Russell Willis from for bringing that story out on one of my Linkedin posts.

The Philanthropic world should not be so happy though – this could still be a $4,600 tax hit per $100,000 of giving for your best donors – but it should at least do away with some of the doom that  many were expecting (especially me).  Capping deductions is still a bad idea and hopefully will not go anywhere.  In the meantime, at least we know that the President sees a little more value in the charitable sector and hopefully won’t be pursuing this insanity of taxing charitable donors.



Fiscal Cliff compromise in works? Not great news for charitable givers leaking out…

I saw it – and then it disappeared.  Early this morning, the Yahoo front page news story about a potential Fiscal Cliff compromise had it and then when I went back later, it was gone.

The piece I read around 6:30 am on Yahoo mentioned that the compromise would likely include a 28% cap on deductions and a $3.5 million estate tax exemption with a 45% top estate tax rate.  Ouch on the 28% deduction cap; o.k. on the estate tax compromise. (Note: it mysteriously disappeared and can’t be found in any web posting – maybe it was revealing too much, maybe not factually correct)

I have been predicting on this blog that a deduction cap will be slipped in any Fiscal Cliff compromise.  It’s an easy target.  Who is going to complain? Maybe your donors won’t notice that they just created a surtax of $.05 to $.10 per charitable dollar given for itemizers?  On a $1,000 charitable gift, that is about $50 to $100 more tax dollars your donor will be paying.  On $10,000, that is $500 to $1,000 more in tax.  On a charitable gift of $100,000, that is a $5,000 to $10,000 penalty.  On the $1 million dollar giver, that is a whopping $50,000 to $100,000 surcharge on their charitable giving.  We are talking a lot of money for the biggest donors.

No one can really tell what this may do to charitable giving (besides boosting 2012 Donor Advised Funding giving and gift acceleration in general).  But, it is still bad news for philanthropy.

Top 10 Reasons Why Capping Deductions is a Bad Idea

With the Fiscal Cliff possibly being averted as we speak, it is very easy to see some tampering with deductions – an easy target because they represent easy numbers.  By “easy numbers”, I mean that Congress always has to make their numbers add up – with as little political capital being used  as possible.

And, by lowering the value of deductions or capping deductions, Congress would essentially be reducing the value of charitable income tax deductions for those in higher income tax brackets (among other areas formerly favored/encouraged like mortgage interest). While it looks like easy money to politicians, there are so many reasons why this idea stinks.

Here are my top ten reasons why Congress should not tamper with deductions (particularly charitable deductions):

  1. Lowering the value of charitable deductions is basically a new tax on charitable givers – if you are going to raise taxes, why not raise taxes on non-charitable givers?  At least charitable givers are putting their money to good use feeding hungry people, educating the young, saving the environment….
  2. On that vain, why not at least raise taxes equally for charitable and non-charitable givers – again, why penalize those who are trying to do good with their money!
  3. People who give to charity (and itemize) are supporting the public good – things that the government would have to provide if not for their charitable contributions!  Ok Congress, you might save a few dollars but by messing with charitable deductions, who knows the new costs you might incur (in jobs and service losses) if your plan really causes a drop in charitable giving.
  4. The idea of offering incentives for charitable giving is to encourage and reward people to support the public good – again, stuff that the government might have to offer if nonprofits weren’t providing it.  By reducing the value of the charitable deduction, aren’t you discouraging people from giving to charity?  Sure you want to do that?
  5. America is by far the most charitable nation in the world – hands down.  You want us to be like Europe?
  6. Nonprofit fundraising is a $300 billion a year industry (according to Giving U.S.A.) – that is about the amount raised each year ($200 million+ from individuals).  That money is not only going to support lot’s of good causes that the government now doesn’t need to provide; that money actually supports thousands upon thousands of jobs in the nonprofit sector – many of which will be lost if your tampering significantly reduced those revenue figures.
  7. Be honest – don’t raise taxes by reducing the value of formerly encouraged behavior because people won’t notice until next April or ever.  Come on, be straight with us and treat us fairly.
  8. Bean-counting – the way accountants find ways to “raise” revenue by cutting expenses – is the antithesis of growth.  You don’t grow by cutting corners – you just make your numbers look good in the short term (something corporate America loves to do).  Cutting the value of  the charitable deduction is bean-counting. Yes, in the short term, your numbers might look  better.  In the long run, you might do significant damage to the nonprofit sector and cause the government to have provide more services.
  9. Do you want to encourage positive behavior through the tax code or not?  Do you want encourage home ownership or not (mortgage deduction gets hit with the deduction cap, too)?  Clearly, the government has had an interest in promoting various things through tax benefits – now you are going to stealth-fully pull them out to make your numbers look good.
  10. Readers – please write in your own comments!

Charitable Deduction Really In Danger?

Hard to believe that the charitable deduction is in danger but it may be true.  See this article from the Washington Post (click here).

It is one thing for bloggers to pontificate about how a Fiscal Cliff compromise might take aim at the charitable deduction.  But, to see the Washington Post report that “the White House and the nation’s most prominent charities are embroiled in a tense behind-the-scenes debate over President Obama’s push to scale back the nearly century-old tax deduction on donations…”