Tax Fight Threatens Deductions

Tax breaks for large gifts could face threats on multiple fronts amid the presidential campaign and the scheduled expiration of the George W. Bush administration’s tax cuts, according to The Wall Street Journal.

The increase in top income-tax rates that would come with the end of the Bush cuts at the end of the year will not raise the value of deductions, due to a rule known as the Pease provision. Set to return next year, Pease would cap the value of all itemized deductions, including those for charitable gifts, for most people earning more than $175,000.

President Obama has called for limiting the value of charity deductions to 28 percent, regardless of the fate of the Bush cuts. And an adviser to Mitt Romney has said the presumptive Republican nominee favors a bipartisan deficit commission’s proposal to lower tax rates broadly, which would also reduce the value of donation write-offs.

With tax breaks for upper-income donors under fire, donor-advised funds—in which contributors can take immediate deductions for paying into the fund but defer decisions on the ultimate charity recipients—are increasingly attractive, The Wall Street Journal also writes.

Beth Kaufman, a lawyer with Washington law firm Caplin & Drysdale, said the firm is talking with clients about making charitable gifts planned for future years in 2012 instead to take advantage of the better tax situation.

Read a Chronicle of Philanthropy opinion column on charities and the upcoming tax and budget battle.