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. 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 provisions of the act that may impact charitable giving:
The 2012 ordinary income tax rates remain intact for most taxpayers. For individuals with incomes more than $400,000 and joint filers more than $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 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.
The reduction of the payroll tax in Social Security is now over. Social Security will now collect 2 percent more from our paychecks.
The estate, gift and generation-skipping tax exemptions remain at $5 million with an annual inflation adjustment (2010 is the base year). The tax rate above the exemption amount, however, is 40 percent instead of the 2012 rate of 35 percent.
A provision with a large impact 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.
(BP)
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