Changes to Charity Tax Deductions

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In 2011, in an effort to close budget shortfalls and fund a jobs bill, President Barack Obama suggested reducing the amount Americans may deduct from their taxes for charitable contributions. Throughout the years, researchers have conducted various studies to determine the impact on non-profits of changing charity tax deductions.

It turns out the effect depends on the donors and the charity type. One study suggested hospitals and educational institutions would be most affected, because their donors already face a 28-percent deduction limit, and the president’s suggestion would lower this percentage.

Next year, high-income donors may still face a charity tax deduction change. The Pease rule, which limits the amount donors may deduct when they itemize on their taxes, was extended following the economic downturn and will become effective again starting in 2013 unless Congress acts. In 2012, the Senate’s Democrats included the measure in their plan to raise taxes for those earning more than $250,000 annually.

In another tax matter, the Senate Finance Committee recently voted to extend several tax provisions, such as the IRA Charitable Rollover. This allows older Americans to take individual retirement account (IRA) money and donate it to charity, which can save them significantly on taxes, instead of counting it as income. Those with traditional IRAs must take required minimum distributions once they reach age 70 ½.

Given Congress’ recent slow pace of activity, experts believe the possibility of a full vote in September or before Election Day remains slim. Nevertheless, the Senate Finance Committee’s action remains positive and sets the tone for a future vote.

Taxpayers who earn more than $250,000 annually should work closely with their financial and tax advisors to determine the best courses of action for their situations. Given the election year and federal government’s numerous fiscal challenges, the tax laws remain especially subject to change.
Disclaimer: The views expressed in this article are the opinions of the author and should not be interpreted as individualized investment advice. Investment objectives, risk tolerances and the financial situation of individual investors may vary. Please consult your financial and tax advisors before investing.

Susan Carr-Templeton

About Susan Carr-Templeton

Susan Templeton is the founder of Stafford Wells Advisors, a wealth management firm serving individuals, families and businesses and advising workplace retirement plans. Stafford Wells was founded in 2008 with the mission of delivering independent, complete, unbiased investment and planning advice, free of any conflicts of interest. Susan Templeton has more than 20 years experience in investment management. She received her B.S.B.A. degree in marketing from the University of Denver and her M.B.A. from the University of Chicago. Susan is a trustee for the Advocate Foundation where she chair’s the Planned Giving Committee and is a member of the Investment Committee. Susan serves on the investment committee for the Visiting Nurse Association (Chicago) and is a former trustee of the Village of Oak Brook Police Pension Plan.