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The ‘fiscal cliff’ bill & charitable giving

NASHVILLE (BP) — After weeks of political drama, the U.S. has averted or at least delayed the so-called “fiscal cliff.”

The American Taxpayer Relief Act of 2012 has been signed into law by the president after passing both houses of Congress. Don’t you love the names of these bills? Taxpayer “relief” means that about 77 percent of U.S. households will pay higher taxes according to Bloomberg, mostly because of the expiration of the payroll tax cut. While some provisions are still set to expire, several provisions have been made permanent.

Following is a brief summary of various provisions of the act that may impact charitable giving:

Income taxes

The 2012 ordinary income tax rates remain intact for most taxpayers. For individuals with incomes over $400,000 and joint filers over $450,000, the federal income tax rate increased from 35 percent to 39.6 percent. The dividend and capital gains rates also increased from 15 percent to 20 percent for those filers as well. For most other taxpayers, however, the capital gains rate remains at 15 percent.

Phase-out of itemized deductions and personal exemptions

For individuals earning above $250,000 and joint filers above $300,000, itemized deductions and personal exemptions are limited. Total itemized deductions are now reduced by 3 percent. This phase-out will be watched closely, as there is still pressure to cap or phase out all itemized deductions.

Payroll taxes

The reduction of the payroll tax in Social Security is now over. Social Security will now collect 2 percent more from our paychecks. An employee earning $113,700 (the maximum amount of earnings subject to the tax), will pay an additional $2,274 in payroll taxes this year.

Estate, gift and generation-skipping taxes

The estate, gift and generation-skipping tax exemptions remain at $5 million with an annual inflation adjustment (2010 is the base year). It is anticipated the inflation-adjusted amount will be $5.25 million in 2013. The tax rate above the exemption amount, however, is 40 percent instead of the 2012 rate of 35 percent.

IRA charitable contributions

The provision with the largest impact to our clients is the extension of direct charitable distributions from IRAs of up to $100,000 by taxpayers 70 and a half or older. This stipulation allows donors to make qualifying contributions through Jan. 31 for the tax year 2012.
Warren Peek is president of the Southern Baptist Foundation, on the Web at www.sbfdn.org. The Nashville-based foundation provides a wide range of investment and estate planning services for Southern Baptist Convention entities, institutions and individuals while supporting the convention in its objective of spreading the Gospel. Get Baptist Press headlines and breaking news on Twitter (@BaptistPress), Facebook (Facebook.com/BaptistPress ) and in your email ( baptistpress.com/SubscribeBP.asp).

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  • Warren Peek/Southern Baptist Foundation