United States Capitol

Solicitation Taxes

Defensive Strategy for the Fiscal Cliff

By January, Americans are likely to be facing what sailors call “headwinds.” Our clients know I am a sailor and today I want to call upon that experience write about “beating”—a sailboat cannot sail directly into the wind, so “beating” is the closet course to the wind that can be achieved.

The payroll tax cut in effect for the past two years is scheduled to end December 31, and there is little visible support in Congress to extend this provision. So, a worker’s portion of his/her Social Security taxes will rise from the current 4.2% to 6.2% and, if self employed, the rate would increase from 10.4% to 12.4%. These increases, plus the likelihood of higher marginal rates and a possible reduction in tax deductions, will make it harder for many Americans to set aside appropriate funding for their retirement. As a development professional hearing such concerns, you might consider asking donors if they can accelerate income into 2012 and postpone deductions for 2013 because write offs will be more valuable when rates are higher.

An old adage describes “beating” as sailing for twice the distance at half the speed and three times the discomfort. Under current law, the estate tax will revert at the end of the year to a $1 million annual exemption and a tax rate of 55% on the value of estates above that amount. You would be well advised to see if your high net worth taxpayers have considered making gifts this year to reduce their estate value.