While
most people are fixated on tax rate increases adding to their income tax bill
in 2013 and beyond, very few people are aware that the Pease limitation
reinstatement can add to their income tax bills by phasing out some key
itemized deductions.
Although some areas of the tax
law became better after the fiscal cliff deal, now that the laws are more
predictable, other areas took a hit – namely charitable giving and donors
themselves.
The Fiscal Cliff Deal
reintroduces the Pease Amendment, so named after former Congressman Donald
Pease. Forbes recently wrote about
this in an article titled “Pease Limitation Puts A Lid On Itemized
Deductions For Wealthy Folks.”
Indeed, as you can tell by the title of the article, the Pease Amendment is
just one more of those “stealth taxes” working to decrease deductions rather
than increase taxation. In this case, for example, this stealth tax chips away
at the charitable deductions for high-earners.
For taxpayers with adjusted
gross incomes (AGI) above $250,000 (or above $300,000 for joint filers), they
will see an itemized deduction limitation kick in that is the lesser
of (a) 3% of the adjusted gross income above the applicable amount, or (b) 80%
of the amount of the itemized deductions otherwise allowable for the taxable
year.
Among other itemized deductions,
this hits the charitable deduction, deductions for mortgage interest,
deductions for various lower level taxes, and so on with some specific exclusions.
That can start to really add up in a year when you happen to have an increase
in your AGI.
So, the tax game has gotten a
bit more complex, and charitable giving has fewer tax deduction rewards for
some individuals these days. Do you think this will impact the amount of
charitable giving for 2013? Only time will tell.
For more information and articles on
estate planning and elder law topics, please visit our website
and sign up for our free monthly e-newsletter. You can also friend
our law practice's Facebook page (R Christine Brown).
Reference: Forbes (January 9, 2013) “Pease Limitation Puts A Lid On Itemized
Deductions For Wealthy Folks”