Would lawmakers tinker with the long-standing charitable deduction? Raise the estate tax? And where would tax rates end up?
It was all so unclear.
In his suburban Maryland office, tax attorney Steve Jacobson worked late Monday while keeping an eye on the cliff debate on CNN. He joked that he was taking a stack of envelopes to a New Year’s party later to dole out to friends. He said they would be monitoring the drama between canapés and, depending on what was decided, might mail off one more big charitable donation just before midnight.
In the end the clock ran out. Jacobson, 54, of Rockville, hedged his bets by doubling the amount of money he put into his personal philanthropic fund — money that will ultimately go to his favorite social-service causes and his alma mater, the University of North Carolina.
“The uncertainty clearly had the effect of getting many ordinarily generous taxpayers to accelerate their giving to some extent,” he said.
Experts said that overall charitable giving is on the rise this year over last but it was too early to say whether the last-minute shenanigans on the Hill would have a major impact on the year’s total — driven up by last-minute donors or down by others who held back because they’re worried about the economic climate. Americans donated nearly $300 billion to charity last year.
“Some people have accelerated their giving and are giving more, ready to get that tax deduction right away and lock it in,” said Stacy Palmer, the editor of the Chronicle of Philanthropy. “Other people are saying it’s better to do it next year. . . . It’s quite split.”
Palmer said some wealthier donors gave bigger gifts toward the end of the year knowing their tax rates were likely to increase and that Congress might change or cap the amount of charitable deductions allowed in the coming year or change the estate tax. Three of the largest charitable gifts this year came in December — Facebook’s Mark Zuckerberg’s nearly $500 million gift to a Silicon Valley community foundation, publisher Mort Zuckerman’s $200 million to Columbia University and Hollywood mogul David Geffen’s $100 million for medical scholarships — although Palmer notes they were likely long-planned.
Under the current terms of the New Year’s deal, the country’s wealthiest Americans — families making $450,000 a year and $400,000 for individuals — will see their tax rates rise and those making over $300,000 will face some limits on itemized deductions. The tax exemption for estates up to $5 million will stay, but tax rates for larger estates will rise from 35 to 40 percent.