The year-end holiday season is the time many consider making charitable donations, and it’s well-known that such gifts can generate a financial break to the donor in the way of tax deductions.
At the beginning of the week, lawmakers returned to Capitol Hill to tackle a backlog of bills and on the agenda was whether to extend Bush administration tax cuts. With the decision still in limbo, there’s some confusion whether to give this year, or wait until next.
Financial Advisor Kevin Skipper with Discipline Financial Management says there’s good reason for the confusion.
Well, the confusion is at several points. One, last year someone who’s seventy-and-a-half years old could take money out of their IRA and donate it directly to a charity. Some people think that’s still in place, though it has not been put in place for this year, but it might between now and the end of the year. That’s causing some confusion. The other is over confusion over the estate taxes. There’s no estate taxes this year, but if Congress doesn’t act, that will come back into place next year.
Skipper says the main thing is to just keep an eye on tax legislation over the next month to see if something happens.
If they extend the Bush tax cuts then rates could stay where they’re at. What that does for a high income person is, if rates go up next year, it would be better for their tax planning to wait til after January 1st to donate to charity rather than giving it before December 31st. So that’s what’s causing some of the confusion.
And, is there any chance of the extension being grandfathered in if Congress misses the December 31st deadline? Skipper says not. “No, because the way the law is written right now, it either, either the Bush tax cuts expire or Congress passes legislation to extend them, or some combination of the two.”
Skipper says that it’s been a difficult year for charities with the down economy, but there is a bright spot for those who wish to give.
The stock market is up this year, and over the last couple of years, and some people have stock in a non- IRA that they can contribute to charities. So what’s called “donor advised funds” have seen an increase in donations because of a rising stock market, about the only bright spot in a confusing charitable giving year.
Although year-end giving may be motivated by tax strategy, Skipper says it’s important to keep in mind the blessings that are experienced throughout the year and to make contributions to that charity regardless of the tax consequences, but because one believes in the cause.