Charitable Giving in 2010

The year 2010 presents a unique opportunity for taxpayers to maximize the tax benefits of making contributions to their favorite charities.  Since 1990, the tax laws have limited the itemized deductions allowable for high income individuals and couples under Section 68 of the Internal Revenue Code.  <?xml:namespace prefix = o />

Section 68 provides that taxpayers may lose the benefit of up to 80 percent of their itemized deductions, depending on their level of income. The limitation imposed by Section 68 reduces overall itemized deductions of taxpayers whose incomes exceed a certain threshold.  In 2009, that income threshold was $166,800. The deductions to which this limitation applies include property taxes, home mortgage interest, and charitable contributions.

The good news is that effective for 2010, the provisions of Section 68 have expired.  This means that itemized deductions claimed in 2010 will not be disallowed based on income.   For those inclined to support charitable causes,  some possibilities for maximizing the tax savings from this opportunity include: prepaying one or more years of future annual gifts, satisfying any sums due under multi-year pledges, or creating a charitable trust that can be funded currently with distributions to charity over a period of time.

While current law provides for the permanent expiration of Section 68, the indication from lawmakers is that some form of limitation on itemized deductions will take effect for 2011, perhaps with more severe restrictions than those effective for 2009.  If you are considering taking advantage of this window of opportunity, it is best to begin to plan for funding these deductions now.  The end of 2010 is just a few short months away.