Prompted by on-again off-again fiscal negotiations in Washington that include possible changes to the deduction for charitable giving, some high-net-worth donors are "paying forward" their charitable donations to take advantage of the deduction in its existing form, the Wall Street Journal reports.
Because it is unclear how negotiations to avoid the so-called fiscal cliff might affect the almost-hundred-year-old deduction for charitable giving, which enables individuals to reduce their taxable income by up to 35 percent of whatever they donate to tax-exempt groups in a calendar year, a number of wealthy individuals told the Journal they intend to increase their giving between now and the end of the year to take advantage of the current rate. "People want to take advantage of 2012's certainty," said Benjamin Pierce, head of Vanguard Charitable. "Front-loading is very much on their minds."
According to the Journal, the Pennsylvania-based money management firm saw donations through the end of November increase by 43 percent on a year-over-year basis, while Fidelity Charitable recorded $1.2 billion in contributions to its funds through September, a 63 percent increase over the same period last year.
The possibility that Congress might eliminate or cap the charitable deduction at a lower rate also has prompted many charities to boost their fundraising efforts. The New York City-based Leukemia & Lymphoma Society, for example, has walked through different tax scenarios with its fundraisers so they are prepared when speaking with donors. And Feeding America, which has been asking its donors "to consider paying forward their commitments," told the Journal that several donors intend to do so.
At the same, many donors are concerned about losing a more valuable deduction next year if the charitable deduction is left untouched and the top marginal rate reverts back to 39.6 percent, as it would if lawmakers fail to reach an agreement and the Bush tax cuts are allowed to expire. "They want to maximize the value of their gifts," said Elda Di Re, who advises wealthy clients at Ernst & Young, "so they have plan A and plan B and are ready to pull the trigger depending on what Congress decides."