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Surviving the Fiscal Cliff and the Impact of the new American Taxpayer Relief Act of 2012 (ATRA)

On January 1, 2013 both the Senate and House passed this legislation avoiding the fiscal cliff. Overall, the new law is favorable to charitable giving, by preserving the IRA Charitable Rollover, the charitable deduction, and, though changed, the capital gain benefits and the estate, gift and generation-skipping tax exemptions. Originally, major changes or deletions of these charitable giving incentives were under consideration. Here are some of the law's provisions affecting charitable giving:

IRA Charitable Rollover

This was approved and expanded for 2012 and 2013. The concept remains the same, allowing donors age 70 ½ to authorize the transfer of up to $100,000 from their IRA's directly to charity. The donor is not to redeem shares or take possession of the funds, or they will incur taxes. Like 2010, Congress approved a retroactive component to the bill. Any qualified distribution made before February 1, 2013 may be applied to your 2012 tax year and counted as a direct transfer to charity.

Individual Income Tax Rates Increase Only for "High Income Households"

The new law permanently extends the current tax rates (10 %, 15%, 25%, 28%, 33% and 35%) for all single taxpayers earning less than $400,000 and married couples earning less than $450,000. For the newly defined, "high-income households," those earning above the defined thresholds will be taxed at a new 39.6% rate.

Capital Gains Rates Increase for "High Income Households"

The exemption from capital gains for taxpayers below the 25% income tax bracket remains in place. Taxpayers in the 25% to 35% income tax brackets will continue to pay the 15% capital gains rate, and those in the new 39.6% income tax bracket will now pay a higher capital gains tax rate of 20%.

Estate, Gift and Generation-Skipping Tax Exemptions Remain with some changes

All three taxes are permanently unified at a $5 million exemption level per individual. This exemption is indexed to inflation in future years. The tax rate increases, from 35% to 40%, for those exposed to this tax. They have also permanently added a portability component, enabling the executor to transfer any unused exemption amount available from the first estate to the estate settlement amount for the surviving spouse.

Itemized Deductions and Personal Exemptions are Capped or Phased Out at Higher Income Levels

There is a cap for itemized deductions and a phase out of the personal exemption for persons earning $250,000 or more and for married couples earning $300,000 or more.

The Payroll Tax Cut Ends

The 2% Social Security tax cut was not renewed in the new legislation.

If you have questions about this new law or how it may affect your giving to Lakeland College, please contact, Stuart Merritt, the college's director of planned giving, at 920.565.1383 or merrittsk@lakeland.edu or contact your financial advisor. Thank you for your support of the educational mission of Lakeland College.

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