American Taxpayer Relief Act of 2012
Charitable Giving Aspects of the American Taxpayer Relief Act of 2012 (ATRA)
Congress passed H.R. 8, the “American Taxpayer Relief Act” on January 1, 2013 and President Obama signed it into law. ATRA addresses the tax portion of the so-called “fiscal cliff” crisis, and impacts every taxpayer. The law has implications for our charitable giving as well:
Charitable Deduction. First, what ATRA does NOT do. Proposals have been made to cap or limit the amount or the value of the charitable deduction. ATRA does not address the tax deductibility of gifts. The debate regarding all income tax deductions will continue as part of fiscal negotiations in upcoming months. And while the result of these discussions remains uncertain, aspects of ATRA offer increased confidence as you make and plan gifts to Clarkson.
IRA Charitable Rollover. ATRA has extended the existing provisions of the IRA Charitable Rollover into calendar years 2012 and 2013. Click to review Rollover guidelines. In addition, at the election of the taxpayer:
- A distribution made directly from your IRA to Clarkson in January 2013 may be deemed to have been made in December 2012
- Any portion of a distribution to a taxpayer in December 2012 may be treated as a qualified 2012 charitable distribution if such portion is transferred in cash to Clarkson before February 1, 2013. (see the bottom of this webpage for the language from ATRA)
Depending on your circumstances, it may be possible for you to make a charitable rollover gift of up to $200,000 to Clarkson in calendar year 2013. Since ATRA extends previous law, charitable rollovers are still not allowed to fund gift-with-income plans such as gift annuities and charitable trusts.
Income Tax Rates. Tax rates will rise above certain thresholds. Individuals earning above $400,000 and married couples earning above $450,000 will see a 39.6% income tax rate and a 20% capital gains rate. A Medicare contribution tax of 3.8% on capital gains and other unearned income is in effect for individuals with adjusted gross incomes (AGI) over $200,000 ($250,000 for couples). And finally, the social security payroll tax rises to 6.2% for everyone. In this environment it may be useful to consider giving appreciated assets held long term to Clarkson to maximize the tax savings. Another strategy is to use appreciated assets to fund gift annuities and charitable trusts, thus generating income as well as an income tax deduction (click to use our gift-with-income calculator).
Pease Amendment. The Pease Amendment, introduced in 1991, was designed to limit all deductions for upper income taxpayers. Total itemized deductions are reduced by 3% of the amount of a taxpayer’s AGI above a threshold amount. The Amendment is reintroduced with a threshold amount of $250,000 for individuals ($300,000 for couples). Since the Pease Amendment is triggered by AGI and applies to all itemized deductions, donors at this level might consider increasing charitable gifts to compensate the loss.
Alternative Minimum Tax (AMT). AMT was designed in ensure that high-income earners pay at least some level of tax. Over time, the AMT ensnared more middle-income taxpayers. The AMT eliminates many itemized deductions as part of the recalculation of taxes at a lower minimum rate. ATRA permanently raises the income level at which the AMT begins to apply and has indexed that level to inflation into the future. Many of us will no longer need to worry about a recalculation for AMT, giving increased confidence in making charitable gifts. For those subject to AMT, it is good to remember that charitable gifts are still deductible against AMT tax rates.
Estate, Gift and Generation-Skipping Tax. ATRA has again linked the gift, estate and generation-skipping transfer tax exemption beginning in 2013, with no sunset provision. The exemption is maintained at $5 million, and indexed for inflation in future years. In addition, portability is preserved for married couples. So, for 2013, the exemption level should be approximately $5.25 million ($10.5 million for married couples). The highest tax rate has been increased from 35% to 40%. This stability allows all taxpayers confidence in planning their estates. For those no longer subject to estate tax, this will allow increased confidence in planning estate gifts to Clarkson. For older taxpayers there may be increased comfort to take estate assets and create Clarkson gift annuities or charitable trusts to increase income now and benefit from the income tax deduction (click to use our gift-with-income calculator). For those still subject to estate tax, charitable lead trusts can help minimize or eliminate estate taxes while still making a gift to Clarkson.
Summary. Your giving to Clarkson is more important than ever to help young adults mature to become leaders in a global society. ATRA allows increased confidence in planning your philanthropy and offers options that may provide increased benefits for you as well as Clarkson. As always, your gifts count in the Evolution to Excellence campaign, anniversary reunion years and towards annual Roundtable giving recognition. Your gift planner at Clarkson is pleased to help you make the most of your giving. Contact us for help, and thank you for your continuing belief in a Clarkson education.
For a clear and concise outline of all of the provisions of ATRA, click here to visit he BNY Mellon Wealth Management website.
Section 208, American Taxpayer Relief Act of 2012:
SEC. 208. EXTENSION OF TAX-FREE DISTRIBUTIONS FROM INDIVIDUAL RETIREMENT PLANS FOR CHARITABLE PURPOSES.
(a) IN GENERAL.—Subparagraph (F) of section 408(d)(8) is amended by striking ‘‘December 31, 2011’’ and inserting ‘‘December 31, 2013’’.
(b) EFFECTIVE DATE; SPECIAL RULE.—
(b)(1) EFFECTIVE DATE.—The amendment made by this section shall apply to distributions made in taxable years beginning after December 31, 2011.
(b)(2) SPECIAL RULES.—For purposes of subsections (a)(6), (b)(3), and (d)(8) of section 408 of the Internal Revenue Code of 1986, at the election of the taxpayer (at such time and in such manner as prescribed by the Secretary of the Treasury)—
(b)(2)(A) any qualified charitable distribution made after December 31, 2012, and before February 1, 2013, shall be deemed to have been made on December 31, 2012, and
(b)(2)(B) any portion of a distribution from an individual retirement account to the taxpayer after November 30, 2012, and before January 1, 2013, may be treated as a qualified charitable distribution to the extent that—
(b)(2)(B)(i) such portion is transferred in cash after the distribution to an organization described in section 408(d)(8)(B)(i) before February 1, 2013, and
(b)(2)(B)(ii) such portion is part of a distribution that would meet the requirements of section 408(d)(8) but for the fact that the distribution was not transferred directly to an organization described in section 408(d)(8)(B)(i).
Follow us on Twitter @annieclarkson
This web page does not provide legal or financial advice, nor is it a comprehensive review of the topic. You should consult your legal and financial advisors and Clarkson University before making or planning your gift. (rev. 9/2013)