Election Results Unlikely to Dampen Year-End Giving, Experts Say

Now that Republicans have made major gains in the Congressional elections, donors have a better idea of how lawmakers are thinking about taxes—and that could be a major influence in their decision making as the year-end giving push gets into high gear.

In the fall, many experts predicted a surge in year-end giving by wealthy donors who were worried that their taxes would soon rise. Fund raisers said they hoped that donors would expand their charitable donations this year as a way to cushion the effects of a tax increase in 2011 and beyond.

Even though Republicans made low tax rates for the wealthy part of their election pledge, their victories do not mean that wealthy donors now lack a key motivation to give, says Robert F. Sharpe, a Memphis planned-giving consultant.

For example, Mr. Sharpe notes, Republicans are unlikely to block from taking effect a tax provision that requires people with high incomes to limit their charitable and other deductions by 3 percent of the amount by which their income exceeds an annual threshold of about $160,000.

Knowing that their charitable deductions are likely to be limited next year—in effect, making it more expensive to donate—could prompt some wealthy people to make a large gift on or before December 31.

In addition, Matthew J. Dolan, a Washington tax consultant, and other tax experts believe that the new Congress, however divided, is likely to extend for 2010 a series of tax provisions that expired last year. One of those provisions likely to prompt some big new gifts before December 31 is a measure that enables retired people to make tax-free contributions to charity of up to $100,000 from their individual retirement accounts.

What’s more, many of the same incentives to make a big gift this year remain in place, regardless of the changes in Congress. With recovery in the stock market, for instance, many donors can do well financially by donating securities that have risen sharply in value over the past year, thus avoiding the capital-gains tax they would face by cashing in the stock, Mr. Sharpe says.

Other donors will take advantage of a provision that, beginning this year, allows wealthy people to shift money from a tax-deferred individual retirement account into a Roth IRA. Roth IRA’s are created with after-tax income and provide tax-free income to people in retirement; however, a person owes taxes on any money moved from a tax-deferred to a Roth retirement account.

By making a large charitable gift, a donor can reduce or even eliminate the taxes owed on a Roth IRA conversion.

Suzanne Perry contributed to this article.