Charities Are Already Feeling Dropoff From Fiscal Cliff Uncertainty
Part of the reason so many Americans are backing off from charitable giving is a fear that Washington pols will cap charitable tax deductions in a fiscal cliff deal -- a hot topic in the recent presidential campaign. Dunham & Co. says a tax cap on deductions would be devastating for charitable institutions, as 33% of Americans would cut their philanthropic donations, the firm predicts.
With so much uncertainty in the air, what can Americans expect on the charitable giving front this year and next? Edwards Wildman, a Boston-based financial and tax advisory firm, breaks it down for you in a Thursday white paper.
According to Wildman, the fiscal cliff leads to three potential scenarios for charitable givers:
- Scenario 1: The Bush tax cuts expire: The highest marginal rate will increase to 39.6% on Jan. 1 from 35%. 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 (people earning $166,800 or more in 2009, indexed for inflation) could lose a significant deduction, and may want to accelerate gifts in 2012.
- 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.
Whatever the scenario, Wildman executives say the lack of a deal would really hurt nonprofits, saying charitable organizations would be left "high and dry" in 2013 if the economy goes over the cliff.
With three weeks left on the calendar, the stakes are high for charitable groups. But there's no guarantee a deal will fall into place, and charitable-minded Americans should plan accordingly.