How Avoiding the Fiscal Cliff May Affect Your Charitable Giving
It's official—the President has signed the American Taxpayer Relief Act of 2012 into law. The new law gives taxpayers some certainty for at least another year, and in some cases, permanently.
The Stelter Company has provided some highlights of changes in effect for 2013:
• The IRA charitable rollover is back for 2012 and 2013.
Donors age 70½ or older are once again eligible to move up to $100,000 from their IRAs directly to qualified charities without having to pay income taxes on the money. Congress recognized the issues with a late extension and provided two special transition rules:
1) Qualified distributions made by Feb. 1, 2013, may be counted retroactively for the 2012 tax year.
2) A taxpayer who took a distribution from an IRA in December 2012, may make a contribution to a qualified charity before Feb. 1, 2013, and treat this as a direct transfer.
• The charitable deduction for donating real property for conservation purposes is extended.
Taxpayers will be allowed to take a charitable deduction for qualified conservation contributions, which are contributions of qualified real estate to a qualified organization exclusively for conservation purposes.
• Individual income tax rates increase for "high-income households."
The new law permanently extends tax rates set by the Economic Growth and Tax Relief Reconciliation Act of 2001 and the Jobs and Growth Tax Relief Reconciliation Act of 2003 for taxpayers earning less than $400,000 a year and married couples earning less than $450,000. It increases the tax rate for high-income households earning more than that to 39.6 percent. The 2013 tax rates will be 10 percent, 15 percent, 25 percent, 28 percent, 33 percent, 35 percent and 39.6 percent.
• Capital gains tax rates increase for high-income households.
The capital gains and dividend tax rates for high-income households will increase to 20 percent. There will be no capital gains tax for taxpayers whose income falls in tax brackets below 25 percent. The capital gains tax rate will be 15 percent for taxpayers whose income falls at or above the 25 percent tax bracket but below the new 39.6 percent rate.
• Estate, gift and generation-skipping tax exemptions are retained.
The new law permanently preserves the current individual gift, estate and generation-skipping tax to a unified $5 million exemption level. This amount will be indexed for inflation in future years. And it would raise the top rate to 40 percent from the current 35 percent. The new law also allows the executor of a deceased spouse's estate to transfer any unused exemption to the surviving spouse. This portability provision is also made permanent.
• Itemized deductions and personal exemptions are restricted.
The new law caps itemized deductions and phases out the personal exemption for individuals earning $250,000 or more and for married couples earning $300,000 or more.
• The payroll tax cut ends.
The new law does not extend the 2 percent Social Security tax cut that has been in place for two years. Taxpayers should expect their next paycheck in January to be at least 2 percent less than it was in December.
If you would like to discuss your charitable gift, please contact Jim Kelvington at 814-871-5368 or email@example.com.