Adverse Tax Proposals Encourage 2012 Giving


The Senate Finance Committee conducted hearings last October on “reforming” charitable giving tax incentives as part of deficit reduction initiatives. Four proposals were under consideration:

  • Placing a cap on tax savings from contribution deductions;
  • Allowing deductions only above a certain floor;
  • Replacing the charitable deduction with a less attractive credit;
  • Eliminating deductions in favor of matching federal grants to IRC §501(c)(3) organizations.

Congressional gridlock may prevent any charitable deduction reform proposals from becoming law until after the 2012 elections. But some “just-in-case” charitable planning might be worth considering this year, on the theory that the tax incentives could decline considerably after 2012.

While the opportunity exists, you might want to:

  • Accelerate several years’ worth of their annual gifts into 2012, while they are still fully deductible;
  • Replace annual gifts with large contributions to donor advised funds from which they could direct future annual grants to organizations;
  • Prepay multi-year charitable pledges;
  • Consider establishing charitable remainder trusts or charitable gift annuities that create large deductions and minimize capital gains taxes;
  • Create grantor charitable lead trusts that generate income tax charitable deductions and enable annual distributions in future years to various charities supported by the donor.