Senior lawyers and their clients frequently have their peak earning years as they near retirement. Many have accumulated sufficient wealth for their retirement and want to provide ongoing support for charities they have been involved with during their working years. I interviewed Peter K. Maier, a professor emeritus of Hastings College of the Law, University of California, San Francisco, on the subject of how to do so in the most tax-efficient manner and how to use charitable contributions to ameliorate the tax consequences of a year in which a lawyer has exceptionally high income. Peter has taught at UCLA, Stanford Law School, and Boalt Hall, the UC Berkeley School of Law. He is also a registered investment advisor and chairman of Private Wealth Partners, LLC, a Marin County investment management firm.
Mann: Let me start with a situation that arises occasionally, Peter. Suppose an attorney receives in one year an extraordinarily large fee which is not likely to occur regularly in the future. What can he or she do in the way of a charitable contribution to offset the very substantial tax liability which would otherwise obtain?
Maier: Well first, Bruce, we need to note that as of January 1, 2013, federal taxes on ordinary income were raised substantially for those taxpayers earning $250,000 a year or more in salaries, dividends, interest, rents, and other forms of ordinary income. And in some states, particularly California, rates also increased substantially for higher-income taxpayers. One should also note that the taxes imposed by the Affordable Care Act (“Obamacare”) added an additional level of taxation starting in 2013. Therefore, your question has more tax import this year than it would have had in the prior 10 years.