In the wee hours of January 1, 2013, Congress avoided the looming fiscal cliff by passing the American Taxpayer Relief Act of 2012 (ATRA). It is debatable how much “relief” ATRA actually provides, since the general effect of the bill is to create higher tax rates for upper-income taxpayers. But ATRA does offer clarity on a broad array of tax issues, including several provisions that are favorable towards charitable giving.
Perhaps the best part of ATRA is what was not included. In its search for “revenue” to feed its appetite for debt, Congress had considered such ominous proposals as capping charitable deductions and limiting the tax savings on charitable gifts. Fortunately, these proposals were not included, but even as I write, Congress continues to debate these and other measures to address much larger financial problems. For the time being, at least, we can be thankful that our nation still recognizes the importance of charitable giving and will continue to reward ICR donors for their gifts to our ministry.
Among ATRA’s most favorable provisions was the extension of the popular IRA Charitable Rollover through the end of 2013. IRA owners age 70½ or older can make gifts up to $100,000 to ICR without declaring it as income. Such IRA gifts also count toward required minimum withdrawals (RMD), providing a rare twofold opportunity to support ICR while avoiding taxes on income that might otherwise be required. IRA gifts are easy to make—simply contact your IRA administrator and give them our name, address, and federal identification number (95-3523177) along with the amount you would like to give.
The biggest news of ATRA was the creation of a new top tax bracket and a higher long-term capital gains rate on the sale of major assets. A whopping 39.6 percent is now required from all married persons making $450,000 or more in taxable income ($400,000 for single persons). For persons in this bracket, the long-term capital gains rate was increased to 20 percent, and combined with the additional 3.8 percent Medicare tax, the overall capital gains rate for upper-income persons will be 23.8 percent. Factoring in potential state tax rates, top earners could face a combined income tax rate between 40-48 percent and a combined capital gains rate for major sales between 28-33 percent! No matter how you look at it, individuals with higher incomes and those considering selling major assets are now facing higher taxes.
Thankfully, strategic charitable giving—through gift annuities, charitable remainder unitrusts and annuity trusts, or a well-planned will—can often minimize the tax bite no matter what your income level may be. ICR is well-equipped to issue and manage most gift annuities and charitable remainder trusts directly, and we can help in your will preparation by referring you to a knowledgeable attorney in your area. ICR’s Planned Giving website (click on the Planned Giving link at www.icr.org/donate) contains highly interactive modules and calculators to help you determine which vehicle might be best for you. Better yet, please contact me for personalized assistance at email@example.com or call 214.615.8313.
ATRA contains many other provisions not covered here, but overall it was fairly kind to charitable giving. Donors with higher incomes and larger capital gains tax bills should find renewed incentive to engage in charitable planning, and ICR stands ready to help. We invite you to prayerfully consider how you can partner with us to ensure your resources support the Lord’s work. “Caesar” is entitled to that portion God has authorized for “him” to take—the rest belongs to God (Matthew 22:21).
* Mr. Morris is Director of Donor Relations at the Institute for Creation Research.
Cite this article: Morris IV, H. 2013. Charitable Clarity at the Edge of the Fiscal Cliff. Acts & Facts. 42 (3): 20.