By Karen Dunn, JD, LLM

Typical year-end tax planning advice for individuals and corporations expounds on the virtues of accelerating deductions and deferring income. Charities and private foundations would be wise to consider the possible impact this advice may have on donations.

It appears likely that income tax rates will drop under a GOP-controlled executive and legislative federal government. There is no clear understanding of the details or what will actually come to pass. However, the consistency in proposed ideas suggests it may be a good time for charities to talk to their donors about the possible tax benefits of accelerating their donations.

Both the House GOP blueprint and President-Elect Trump have emphasized tax reform as a major goal, which may include reduction of the marginal tax rates for C corporations, individuals, and even income from partnerships, LLC’s and S Corporations.

For individuals in the top marginal 2016 federal tax brackets (potentially as high as 44% **) the economic value of deductions, such as the charitable contribution deduction taken in December of 2016 instead of 2017, could be significant.

Charities are taxpayers too – to the extent the charity has unrelated business income, it should also consider accelerating deductions and deferring income. Charitable contributions, a typical deduction that can be accelerated, might be worth 10% more on the dollar given in December 2016, rather than 2017, if the corporate tax rate drops from 35% to 25%.

Conversely, deferring unrelated business income until 2017, to the extent such planning is possible, is beneficial. One of the most impactful views proposed by both the House and President-Elect Trump is the elimination or limitations on the amount of allowed charitable deductions.

© Clark Nuber PS, 2016.  All Rights Reserved

This article contains general information only and should not be construed as accounting, business, financial, investment, legal, tax, or other professional advice or services. Before making any decision or taking any action, you should engage a qualified professional advisor.