Despite the last minute December scramble, the yearend squabbling in Congress brought good news to the philanthropic world. The American Taxpayer Relief Act (ATRA) went into effect at the beginning of the New Year. The bill positively affects the taxing of charitable giving. Congress and the Obama administration debated for months about changes to and/or the possible elimination of charitable deductions. It is now up to not-for-profits to reassure their donors that the new bill does not restrict, or place caps on charitable deductions. While lawmakers argued that the Bush-era tax cuts only benefited the extremely wealthy, nonprofits maintained it was these donors that often keep small charities afloat. Middle-income families make significant contributions, of course, but not enough to fuel capital campaigns. Not-for-profits will need to spend this year promoting incentives, and encouraging wealthy donors to stay engaged and active.
The New Taxpayer Relief Act Includes:
- Tax Increase for the Wealthy: Individuals with a taxable income of more than $400,000 ($450,000 for married couples) will see a tax-rate increase from 2012. The original tax brackets remain, but a new 39.6% bracket may encourage more giving from high-income donors, as contributions that would lower an individual’s tax brackets might encourage them to make larger gifts.
- Capital Gains Tax Increase: Those in the top tax brackets will also see capital gains tax rates rise to 20%. This increase may encourage more donations of appreciated stocks and real estate.
- An extension of IRA rollover: Those 71 and older will continue to be able to contribute $100,000 before December 31, 2013 from their traditional IRA. Further, a special incentive for giving resulting from the fiscal cliff deal gave seniors a one-month window for January 2013 gifts that still qualified for 2012 tax deduction.
- Cuts in Certain Deductions: Individuals with gross income of at least $250,000 ($300,000 for married couples) will have charitable deductions limited to 80% of adjusted gross income.
As we all know, charitable giving has been slow to reach pre-recession levels. Wealthy donors were especially reluctant to give in 2012 because of uncertainty about tax law changes. The much publicized tax debate divided even those in the not-for-profit sector. Since there is some agreement now with the passing of ATRA, fundraisers need to understand the new laws, engage boards in donor cultivation, and make sure donors feel comfortable and confident giving in 2013. From small foundations to large universities, ATRA should help to encourage giving, especially by the wealthy.
Payson Wild, Adjunct Counsel for Planned Giving mentions, “New laws in 2013 could encourage greater giving from high-end earners through estate planning since doing so would reduce potential problems with deduction limits while reducing estate tax exposure.”