written by Joe Page
Although there was much discussion about reducing or even eliminating the deduction for gifts to charities, The American Taxpayer Relief Act of 2012, recently passed by Congress, preserved the charitable deduction.
For now, the good news for the not-for-profit sector is that the bill did not change the limits on charitable deductions. Tax savings will continue to be coupled with an individual’s or household’s corresponding tax rate.
IRA Charitable Rollover
The bill also extended the IRA charitable rollover through December 31, 2013. This provision permits tax-free distributions to an eligible charity from an IRA held by someone age 70½ or older of up to $100,000 per taxpayer, per taxable year. The provision includes two transition rules to allow donors to make 2012 contributions.
First, the extension allows individuals who received an IRA distribution in December 2012 to elect to count that distribution (or a portion thereof) as a 2012 IRA charitable rollover if the individual transfers the amount in cash before February 1, 2013, to an eligible charity. Additionally, the extension allows donors to make distributions directly to eligible charities before February 1, 2013, and elect to have such distributions treated as qualified charitable distributions in 2012. This change may be of particular benefit to donors who would like to take advantage of the rollover in both 2012 and 2013.
Itemized Deductions Limited
Although the bill did not directly limit charitable contributions it did reinstate a provision to limit a taxpayer’s overall itemized deductions. Starting in 2013, itemized deductions for higher income taxpayers will be reduced by the lesser of (1) 3 percent of the amount by which the taxpayer’s income exceeds $250,000 for individual filers, $275,000 for heads of households, or $300,000 for married couples filing jointly (these amounts are adjusted annually for inflation) or (2) 80 percent of the value of the taxpayer’s itemized deductions.
While the charitable contribution deduction remains for 2013, Congress will continue to consider comprehensive tax reform that could lead to changes to the charitable deduction. Any updates will be included in future Whitlock Company newsletters and press releases.
If you have any questions, please contact one of the professionals at The Whitlock Company 417-881-0145.