San Diego Business Journal

Tax Uncertainties Cloud Financial Picture, Charity Outlook

TAXES: Advisers Offer Insight on Various Options By Marion Webb Monday, November 19, 2012

The sales tax increase will be effective in Jan. 1, 2013, but the income tax increase is effective starting with the 2012 tax year.

“If there is a danger of people losing a deduction, you want to go for the sure thing,” Knowlton said. “Going forward with the higher federal (and state) tax rate for the highest income earners, and if nothing is done to the charity deduction, they would be worth more next year.”

There Are Options

Tim Callan, president and co-founder of the investment advisory group Callan Capital in San Diego, who manages assets of $2 million for new clients, projected that some of his clients may be less inclined to donate, if tax rates go up and the limit on charitable contributions takes effect.

He noted, however, that for donors who want to use this year’s charitable tax benefits, there are options.

“A lot of our clients want to donate, but they don’t know to which charity,” Callan said. “It’s good to put the mechanisms in place, so we can pull the trigger in December — hopefully, Congress will give us the budget next month.”

Two options for putting mechanisms in place, according to Callan, are the “donor-advised funds” and “family-foundation.”

Donor-advised funds offer givers the ability to make large contributions before year-end and get a full deduction, while allowing them to postpone decisions about recipients. Family foundations provide grants to charitable organizations and causes who adhere to the wishes of the donors. It requires that donors disburse a minimum of 5 percent of their endowment income annually.

Family Foundation More Flexible

Comparing the two, Callan said that a family foundation allows more flexibility on the type of charity someone wants to support and allows a family member to be on the board of directors and take a salary. Whereas a donor-advised fund typically goes to an existing charity, is easier to set up and private.

Beamer said he would also consider recommending setting up a donor-advised fund to clients who want to give money into the future.

“It could be appropriate for someone who has an unusually high income this year,” Beamer said. As someone who works with nonprofit organizations, Beamer said the sector will fight any changes which would discourage giving.

“There will be enormous lobbying against that from the entire charitable industry,” Beamer said. Callan agreed with Beamer.

“Lobbyists in charitable groups have great influence and will fight the cap on deductions,” Callan said.

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