After reading the previous article regarding accelerating income to 2010, one of my clients called me to discuss a large charitable gift that he is planning to make in December of 2010. He wanted to confirm that postponing deductions until 2011 is a good idea.
As a general rule, it will be advisable to postpone the payment of deductible expenses and charitable contributions until 2011 if tax rates are higher in 2011. However, there are additional considerations with deductions. The Internal Revenue Code limits deductions in various ways.
For example, you can only deduct charitable contributions up to a certain percentage of your income for the year. If you accelerate a lot of income to 2010 and postpone your charitable gifts until 2011, you may find that you will not be able to deduct the entire amount of the contribution in 2011. You are allowed to carry over any excess charitable contribution deductions for five years. However, the farther away in time that you benefit from the deduction, the less utility it has on a present value basis.
I recommended that my client ask his CPA to run some pro forma calculations in order to understand the tax ramifications of postponing his charitable contribution until January of 2011. Most CPAs have software that can calculate estimated taxes based upon the scheduled law for 2011.
Postponing deductions until 2011 might be a good strategy. However, you should confirm it with your CPA prior to making this decision.