How Charitable Contributions Are Likely to Get More Mileage This Year Than Next

August 11, 2010

If you make over $200,000 a year, 2010 may be the optimal time to make a charitable contribution. In 2011, the deductible portion of your contributions is likely to be reduced. In 2006, PEP (Personal Exemption Phase-out) and Pease (shorthand for limitations on itemized deductions) were both gradually phased out and this year they disappeared altogether. It is expected that they will be reinstated in 2011, but with a higher threshold. Thus, 2010 may be the only year that the full amount of charitable contributions, subject to adjusted gross income limitations, will be deductible. Pease limitations apply to almost all itemized deductions, including charitable contributions. Thus, it is likely, given the Government's desire to generate higher taxes, that your ability to deduct a portion of the donation from your adjusted gross income could be reduced in 2011. Although the top tax rate in 2011 will be higher, the portion of the deduction that may be disallowed can result in a lower overall tax benefit in 2011 relative to 2010 for the same donation. Accelerating charitable contributions in 2010 may also be a good strategy for offsetting significant taxable ordinary income such as from the conversion of a traditional IRA into a Roth IRA. Your Perelson Weiner partner can assist you with tax projections to determine the optimal year and amount for your charitable donations. Read more:

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