Smart Philanthropy in Uncertain Tax Times

I've posted a separate piece here about the general issues facing taxpayers as they do year end planning in 2012. An important point in that discussion is that the possibility of higher tax rules in 2013 does not necessarily mean that it's better to generate deductions than in 2012. In fact, tax ambiguity for 2013 may make 2012 a good year for donors. Now is the time to consider taking advantage of current tax law as you support your favorite causes such as Case Western Reserve University.

Here are a few philanthropic strategies to consider this year:

1. Increase contributions in case itemized deductions become limited in 2013

Without Congressional action, there will be a gradual phase-out of itemized deductions for high income taxpayers. As a result, the deduction for charitable contributions may be more valuable for reducing taxes this year than in 2013. In addition, there are a number of proposals to cap itemized deductions. This means the income tax benefit of charitable giving may be less in 2013.

Consider: If you donate to CWRU before year end, you receive the maximum allowable tax benefit based upon current tax rates and deduction limits.

2. Gift appreciated securities to offset taxes from accelerating capital gains

As the stock market has improved, folks are donating appreciated securities to reduce taxes now and later. In 2012, when you contribute appreciated securities directly to charity (instead of selling the securities and then donating the proceeds), donors:

  • Owe no tax on capital gains
  • May be eligible for a charitable tax deduction up to 30% of adjusted gross income and may carry forward unused deductions up to 5 years.

Consider: If you donate the cash proceeds from the sale of long-term appreciated securities, the current capital gains tax rate is 15%. This rate is set to become 20% in 2013.

Consider: Long-term appreciated securities with unknown cost basis may also make desirable contributions. This donation eliminates need to research the cost and you may take a tax deduction for the security's fair market value.

Consider: If you're holding securities with a loss, it is usually be better to sell first. Take the capital loss for tax purposes, and then donate the cash.

3. Reduce estate size before taxes rise and exclusion amount drops

With estate tax exclusions potentially decreasing from $5.12 million to $1 million and estate tax rates set to possibly rise from 35% to 55%, donors can make gifts that enable them to immediately reduce estate tax size and tax exposure. Plus, CWRU welcomes the opportunity to partner with you during life to explore win-win philanthropic investments.

Consider: We will partner with you and your advisor to find creative ways to support present and future generations of students and faculty-and help you achieve your personal philanthropic goals.

The Holiday Season is a joyous time when many donors activate their charitable giving. Whether your goal is to leave your legacy, supplement your income or lower your taxes, our Office of Planned Giving will partner with you and your advisor to find creative ways to support present and future generations of students and faculty.

Feel free to contact me or our Senior Director of Planned Giving, Chuck Miller, to discuss how to further your charitable goals. My contact information is available here. Chuck can be reached at 216.368.8640 or cmm38@case.edu.

We look forward to helping you achieve your philanthropic goals.