By Susan Robinson Paladino/Special to the Journal
TUPELO – The recent adoption of the American Taxpayer Relief Act left many Americans wondering how the legislation affects them.
In particular, they may be wondering how it will impact their 2012 tax returns as it relates to charitable donations.
For many Americans, planning for the upcoming tax season was complicated by a lack of clear direction from Washington. Congress’ 11th-hour passage of legislation to avoid the fiscal cliff pushed back the IRS’ filing date from Jan. 22 to Jan. 30 to allow the agency to update forms and prepare for processing.
Because of their late passage of the legislation, lawmakers also extended the inclusion of certain charitable donations on 2012 tax returns until Jan. 31.
IRA rollover gifts may be the most impacted with the extension. This is especially important for those who are over age 70 and are required to make a 5 percent withdrawal from their IRA annually. This withdrawal may be distributed directly to a qualifying nonprofit organization to avoid counting toward 2012 income. It is applicable for rollover gifts up to $100,000 on or before Jan. 31 and up to $200,000 by the end of 2013.
Will the extension lead to additional dollars for area nonprofits?
Mike Clayborne, president of the CREATE Foundation, said the legislation is good news for charities and philanthropic individuals, but “tax consequences of giving are not an overriding factor or fundamental motivator for those who are inclined to give.”
But having the extension information available is valuable to many who are interested in supporting qualified charities with their money, said Sandra Guest, the University of Mississippi Foundation’s vice president.
“We have seen some increase in (IRA rollover gifts) so far, but have just sent out information to a wide group of prospective donors,” she said. “We hope prospective donors will see this as a benefit and act.”
According to Clayborne, another important consideration for 2013 tax returns is the likely increase in capital gains taxes. He advised that one way to lessen the impact of the expected increase for some individuals is through making a gift of stock rather than a cash gift to a qualified charity. The IRS recognizes the amount of a gift of stock based on its appreciated, or cashed-in, value toward your potential tax credit, not the value at which you purchased the stock.
For example, a stock purchase of $1,000 by an investor may be worth substantially more in tax credits based on its current value. Clayborne estimates 50 percent to 75 percent of contributions to CREATE’s Donor Advised Funds are gifts of stock.
The next round of fiscal legislation, currently slated to begin in March, likely will provide more answers on what to expect for 2013 tax rates.
Dean Hancock, president of the Health Care Foundation of North Mississippi, said uncertainty surrounding political and economic progress could have a negative impact on charitable giving. He said Congressional action to spark “political and economic optimism” would greatly help charities in terms of the public’s willingness to make contributions.
Regardless of Congress’ future actions, Hancock said he hopes that changes will not significantly affect traditional giving. However, he also said he recognized the potential impact on special projects and major gifts from high-income donors.
The new tax law puts back a limitation on itemized deductions for higher-income taxpayers. The Pease limitation as it’s called affects individuals with income of at least $250,000 and married couples filing jointly with incomes of $300,000 or more. The limit reduces charitable and other itemized deductions by 3 percent of the amount that a taxpayer’s adjusted income exceeds the threshold amount.