There's a dark cloud on the tax horizon

As if there isn't enough bad economic news, there is a dark cloud on the tax horizon, which may substantially affect national and local charities. This cloud is not necessarily economy-produced, but if plans go as scheduled, will be Congress-produced.

Federal tax laws have encouraged private charitable giving. The Federal Death Tax exempts any part of a person's estate that is given to a qualified charity.

Income tax has had a varied rate over the years, but has always considered charitable giving a noble thing. The present law permits an individual to deduct from up to 50 percent of his income for cash charitable gifts (30 percent for non-cash gifts), and even carry over to future years any excess over 50 or 30 percent of our income.

That is about to change if present tax proposals are enacted.

The current law, which keeps the top income tax rate at 35 percent, will expire in 2011, and the top rate will automatically go to 39.5 percent.

Another provision in the tax law proposal will not prohibit, but certainly discourage a higher income person or family from making charitable donations. Why? Because the new law would in effect impose an additional "penalty tax" on individuals with income of more than $200,000, and couples with more than $250,000 who are making charitable gifts.

Assume such a donor had income of $400,000 in the years 2009, 2010 and 2011, and in each year made charitable gifts of $100,000. The bottom line is that after 2010, individual donors with income over $200,000 and couples with income over $250,000, will only be able to deduct charitable gifts at the 28 percent tax rate, whereas their actual then tax rate will be 39.5 percent. The result will be that a donor who makes a gift in 2009 or 2010 of $100,000 will pay no tax on that gift. However, beginning in 2011, such a donor or donors of $100,000, will pay an additional tax of $11,500 (the difference between the current fully deductible gift and the 11.5 percent variance in the then allowable 28 percent rate deduction and the 39.5 percent then tax rate.)

Likewise, a larger gift from a larger income donor would be proportionately penalized at 11.5 percent. The net effect is that the generous donor will be paying a "penalty tax" for being charitable. Surely, this will be a discouragement to the more able and generous donors whom all of the local and national charities depend upon to further their dedicated causes.

You may now be saying to yourself, "So what? That doesn't affect me! I'll never make $250,000 or more in any year." That may well be so for most of us, but it will affect all of us. Here's how.

There may well be millions (possibly billions) fewer dollars given to worthy charities by the wealthy, which will raise the obligation of the government (as opposed

to private charities) to

care for the needy, and you will be paying more tax to fund that. Heaven knows, private industry and private charity are much more efficient than government in such fields.

What to do? Even if you don't ever anticipate having an income of $250,000, absent winning the lottery, and especially if you might or do reach that plateau, you should contact your Senators and congressmen and tell them to vote against the provisions that raise the tax rate and lower the charitable tax deduction.

Additionally, if you are among those fortunate who may expect a large income in the future and do plan to make substantial charitable gifts, consider, if you are financially able, making those gifts in 2009, or possibly in 2010. It will save you a considerable amount of tax. Finally, stay closely tuned to see what congress and the administration do.

The Southwest Florida Community Foundation has been supporting the communities of Lee, Charlotte, Collier, Glades and Hendry through endowed funds for 33 years. With assets of more than $57 million and over 320 endowed funds, the Community Foundation has provided more than $39.5 million in grants and scholarships to the communities it serves. For more information, please call 274-5900, or visit our Web site at www.floridacommunity.com.