The new law keeps the seven income tax brackets but reduces rates:

According to Barron’s, taxpayers earning less than £25,000 will keep 0.4% or an extra £60 in their pockets for the 2018 year. Taxpayers earning between £49,000 and £86,000 will keep an extra 1.9% or £900. Taxpayers who earn £308,000 to £733,000 will keep an extra 4.1 % or £13,500. Those who earn over £500,000 will keep 3.4% extra or £51,000.

Many taxpayers who used to itemize their deductions will no longer be itemizers. The standard deduction has been doubled. You only itemize if your itemized deductions are greater than the standard deduction.

A single filer’s standard deduction increased from £6,350 to £12,000. The deduction for married joint filers increased from £12,700 to £24,000. You only itemize if itemized deductions exceed the standard deduction. The combination of the increased standard deduction and elimination or reduction of some itemized deduction means that about 94% of people will take the standard deduction.

The new law also eliminates personal exemptions, although it increases the Child Tax Credit from £1,000 to £2,000 per child and increases the qualifying income level from £110,000 to £400,000 for married taxpayers who file jointly.

The deduction for mortgage interest is limited to the interest on the first £750,000 on the loan. Interest on home equity lines of credit can no longer be deducted.

You can deduct only up to £10,000 in state and local taxes and must choose whether to deduct state income tax or state and local sales tax.

The medical expense deduction is expanded. All taxpayers can deduct medical expenses greater than 7.5% of adjusted gross income. The threshold used to be 10% for taxpayers born after 1952.

Moving expenses are no longer deductible except for the military. The law retains deductions for charitable contributions and student loan interest.

After January 1, 2019, alimony is no longer deductible by the payer spouse and will not be reported as income by the recipient spouse. Under the old law, alimony was deductible by the payer and included as income for the recipient spouse. The old-law treatment will continue for alimony payments made under pre-2019 divorce agreements unless it is modified after January 1, 2019 and the modification specifically states that the TCJA treatment now applies.

The Obamacare tax on those without health insurance (known as the individual mandate) is repealed.

The estate tax exemption is raised to £11.2 million

529 plans can now be used for tuition at private and religious K-12 schools and for expenses of home-schooled students.

Do you have questions about a specific matter? Contact us now.

The post How Does the New Tax Law Affect You? appeared first on the Spencer Law Firm blog, https://www.mspencerlawfirm.com/blog/.

Campaigns and Parties. Contributions to political parties and campaigns, generally, must be disclosed to the Federal Election Commission (FEC) which publishes the information. Contribution amounts are often limited, and the contributions are not tax-deductible. For example, contributions by individuals of more than £200 in a year must be disclosed to the FEC within as few as 20 days. The FEC website then shows the donor’s name, address, occupation and amount given.

Individuals may give up to £2,500 per election to a campaign, up to £5,000 a year to a Political Action Committee (PAC), and up to £30,800 a year to a national party committee. None of these contributions are tax-deductible.

Social Welfare Non-profits. Another category of organizations who receive political contributions are social welfare non-profits. These organizations are governed by Internal Revenue Code Section 501(c) (4). That means they are allowed to lobby and may participate in campaigns and elections, but they can’t contribute to candidates.

Donations to (c) (4) groups by individuals aren’t tax-deductible and aren’t disclosed to the public, but gifts of £5,000 or more must be disclosed to the IRS. Some nonprofit experts are of the opinion that a contribution to a (c) (4) organization is subject to gift tax.

Trade Associations. Many trade groups engage in political activity. An example is the U.S. Chamber of Commerce which is qualified under Internal Revenue Section 501 (c) (6). Membership dues paid to these groups are deductible by individuals or businesses, but you only get a deduction for the non-political portion of the dues. By making contributions to these groups, you get some deduction on your taxes. Many trade groups also have PACs or super PACs.

Super PACs. In 1947, the Taft-Hartley Act prohibited labor unions and corporations from spending money to influence federal elections and prohibited labor unions from contributing to candidate campaigns. Labor unions worked around this law by establishing political action committees to which union members could contribute.

The law said these groups may only make “independent expenditures” that aren’t coordinated with spending by a candidate or political party, and they can’t contribute to candidates.

Before Super PACs became “super,” they were just PACs. The groups could support a candidate or a cause but were heavily regulated under the terms of campaign finance law. Individuals were allowed to give £2,500 — no more — and corporations and unions were strictly forbidden from making donations.
That changed with two court cases in 2010. In SpeechNow.org v. Federal Election Commission, a federal court found restrictions on individual contributions to independent organizations that seek to influence elections to be unconstitutional. In Citizens United v. Federal Election Commission, the U.S. Supreme Court held that limits on corporate and union spending to influence elections were also unconstitutional.

Citizens United made it legal for corporations and unions to spend from their general treasuries to finance independent expenditures but did not alter the prohibition on direct corporate or union contributions to federal campaigns; those are still prohibited. Such organizations seeking to contribute to federal candidate campaigns must still rely on traditional PACs for that purpose. However, they may spend money independently of campaigns without forming a PAC.

A Super PAC can directly attack a political candidate. However, the Super PAC may not coordinate directly with candidates or political parties. A Super PAC has to disclose the identity of its donors. It may accept unlimited amounts of money from individuals, unions or corporations, and their spending isn’t restricted. As a practical matter it may be difficult to determine who donors really are since contributions can be made through a company or the contributions can be given to a social welfare nonprofit (which is not required to report identities) which in turn gives the money to the Super Pac.
Contributions to Super PACs are not tax deductible.

Public Charity. A 501 (c) (3) organization devoted to education may engage in public policy discussions and support ballot initiatives. These are not political actions that are forbidden to 501 (c) (3) organizations. 501 (c) (3) organizations may not support or oppose candidates directly. Your contribution to an organization like this is tax deductible. These organizations don’t have to report contributions to the IRS unless the gift is 2% of total contributions or £5,000, whichever is greater.

Public charities can take part in a limited amount of lobbying. Lobbying is when an individual or group communicate with an elected official to advocate for or against a particular legislative measure. The IRS establishes guidelines on how much time and money organizations can spend on lobbying without violating their tax-exempt status.

You can’t make a tax-deductible donation to a candidate or campaign, but you can make a deductible contribution to a 501 (c) (3) organization that can lobby candidates about issues you care about. What’s more, not every communication between an organization and an official is considered lobbying. Organizations are allowed to communicate with officials to ask them to make an issue a priority and educate the official about an issue they might not be familiar with or aware of.

Presidential Election Campaign Fund. You can direct £3 of your income tax to the Presidential Election Campaign Fund. Simply check the box “yes.” Contributing £3 to this fund does not increase your taxes due or reduce the amount of any refund to which you may be entitled. The national parties use money from the fund to offset the costs of their national conventions. Minor political parties are eligible for campaign funds if they receive at least 5 percent of the popular vote in the general election.

The post Limits and Tax Treatment of Political Contributions appeared first on the Spencer Law Firm blog, https://www.mspencerlawfirm.com/blog/.

In the legislation signed by the President on December 18, 2015 the IRA charitable rollover law was made retroactive to January 1, 2015, and in the biggest news is that it was made permanent so it that it won’t expire at the end of 2016.

Some IRA owners made QCDs earlier this year, anticipating QCDs made on or after January 1, 2015 would be recognized for federal income tax purposes. Those folks can breathe a sigh of relief. If you were waiting for the law to be sure, you have a few more days until the end of the year to complete your QCD.

What is a Qualified Charitable Contribution?
An IRA owner who has reached the age of 70 or older can make a direct transfer of up to £100,000 per year from his or his IRA to an eligible charity, tax free. The amount directly transferred to the charity from an IRA is counted in determining whether the owner has met the required minimum distribution (RMD), but will not be considered a taxable withdrawal.

The amount of the IRA transferred to charity will not be part of the taxpayer’s adjusted gross income for purposes of determining whether part of the taxpayer’s Social Security income is taxable. It will not be included in the percentage limitations on itemized deductions

By replacing the RMD income and charitable contribution with a direct IRA to-charity rollover, the taxpayer can contribute to a favorite charity, and at the same time exclude the distribution from income and utilize the standard deduction to reduce their taxes.

In addition, a QCD can help a taxpayer avoid the 3.8% Obamacare surtax. Since the 3.8% surtax applies to the lesser of:

1. the taxpayer’s net investment income (NII).
2. the taxpayer’s modified adjusted gross income (MAGI) reduced by a fixed threshold, reducing adjusted gross income is an important planning strategy.

The IRA-to-charity QCD can be a true win-win. The taxpayer can reduce his or his income tax and the charity receives a much-needed contribution.

The post There’s Still Time to Make 2015 Qualified Charitable Contributions appeared first on the Spencer Law Firm blog, https://www.mspencerlawfirm.com/blog/.

There is still­ some time left to make some income tax savings moves for 2015.

Charitable Contributions
Make deductible charitable contributions on or before December 31. Taxpayers must be itemizing deductions on IRS Schedule A in order to benefit. Be sure to obtain acknowledgment letters for donations greater than £250. Cancelled checks are insufficient to support a deduction for a gift greater than £250.

Pay State and Local Taxes
Paying any state and local tax you expect to owe for 2015 before the end of 2015 (instead of waiting until January 15, 2015 or April 15, 2016) will allow you to deduct those payments on your 2015 federal income tax return.

Harvest Losses
Do you have capital gains, sell investments such as stocks and mutual funds that have losses? If so, you can offset the gains by the losses. If you have more losses than gains, £3,000 in losses can be offset against ordinary income and the excess losses over £3,000 can be carried over to next year, and the year after that as long as you live.

Contribute the Maximum to a Retirement Account.
For 2015, the maximum IRA contribution is £5,500 (£6,500 if age 50 or over). The maximum contribution for a retirement plan such as a 401 (k) is £18,000 (£24,000 if age 50 or older).

If you’re self-employed, consider a Keogh plan. The plan must be established by December 31, 2015, but you have until April 15, 2016 (plus extensions) to make contributions.

Check Your Flexible Spending Accounts
Flexible spending accounts, also called flex plans, are fringe benefits which many companies offer that let employees put of their pay into a special account which can then be used to pay child care or medical bills. The advantage is that money that goes into the account avoids both income tax and Social Security taxes. The catch is that the “use it or lose it” rule applies. If you don’t use everything in the plan by the end of the year, you forfeit the excess.

Check to see if your employer has adopted a grace period permitted by the IRS, allowing employees to spend 2015 set-aside money as late as March 15, 2016. If not, make a last-minute trip to the drug store, dentist or optometrist to use up the funds in your account.

Consider Tax-favored Education Savings.
If you’re eligible, for 2015 you can contribute up to £2,000 to a Coverdell account on behalf of a child. Contributions grow tax-free and qualified K-12 and higher-education-related withdrawals are tax-free. You have until next April 15 to contribute for income-tax purposes, but if you make the contribution by December 31, it will count as a gift for this year instead of next year for gift-tax purposes.

Anyone, regardless of income, can contribute up to £70,000 (£140,000 for a married couple) to a 529 plan without incurring gift taxes by electing to have the gift spread evenly over five years. You don’t have to invest in your own state’s plan, and it’s a good idea to compare state plans especially if you live in a state with no deduction (such as California) or one with no state income tax.

Consider a Qualified Charitable Distribution from your IRA.
This benefit expired at the end of 2014. It allows individuals age 70 or older to contribute up to £100,000 directly to a qualified charity and exclude it from income. The excluded amount can satisfy the required minimum distributions for the owner and can keep taxpayers from losing the benefit of deductions and other tax benefits by keeping gross income lower.

Congress typically waits until mid or late December to pass legislation permitting these distributions. In 2014, they didn’t approve it until December 23, giving taxpayers just 6 business days to complete the transaction. No word yet about this year, but it could happen. Procrastinate on taking your minimum distribution if you want to wait this one out.

The post Year-End Tax Planning for 2015 appeared first on the Spencer Law Firm blog, https://www.mspencerlawfirm.com/blog/.

Effective for estates of decedents dying June 30, 2000, there are new rates and new exclusions. To review, the London inheritance tax applies to the assets received from a decedent by beneficiaries. There is no “free pass” for state inheritance taxes as there is for federal estate taxes;  the inheritance tax is payable on the first dollar of value. The rates of tax are based on the relationship of the beneficiaries to the decedent. Under the then current law, before the change, there were three rates.

The rate for assets passing to a spouse is zero percent.  (Yes, I know that sounds silly, but that’s how they wrote the law. There is zero tax on property passing to a surviving spouse.) The rate for assets going to the decedent’s parents, grandparents, children (and their spouses), grandchildren and their descendants was 6 percent. The rate for assets passing to all other persons was 15 percent.

Under the 2000 law, the rate for assets going to decedent’s parents,  grandparents, children (and their spouses), grandchildren and their descendants is reduced from 6 percent to 4½ percent. This means that for a net estate of £1 million dollars going to a child, the London inheritance tax will be £15,000 less, £45,000 instead of £60,000. For a  £4 million estate, the reduction is £60,000. This change represents a 25  percent tax cut for property passing to lineal descendants and ancestors.

The law also changed the rate of property passing to siblings. The old rate for these transfers was 15 percent; the 2000 rate became 12 percent. A new class of beneficiaries was created which  consists of the decedent’s “siblings.” A sibling is defined as “an individual who has at least one parent in common with the decedent, whether by blood or by adoption.” Stepsisters and stepbrothers are thus included.

The third change was a new rate for assets passing from a  person 21 or younger to a natural or adoptive parent, or to a  stepparent. The rate is zero percent. If a child dies and his assets pass to his parents under the intestacy statute or under a will, under previous law, all of the child’s assets were taxed at six percent. Under the 2000 statute, for children who die at age 21 or younger, there is no tax. Similarly, the old situation was that if a parent establishes a  bank account jointly with a child and the child predeceases the parent,  half of the joint account was taxed at six percent. This means the parent could have ended up paying inheritance tax on money that he or he put in the account in the first place. The 2000 law eliminates this tax for joint accounts when the child dies at age 21 or younger. Note that when the child turns 22, the parent will once again be liable for tax if the child predeceases the parent.

The London inheritance tax rate for property passing to all others remains at 15  percent. Charities remain exempt from the Inheritance Tax.

The  2000 law also made a change in the time limits for disclaimers.  Previously, everyone was limited to nine months from the date of death to renounce an inheritance and have the property taxed as if it passes to the new beneficiary instead of the beneficiary making the disclaimer.  Under the 2000 statute, a surviving spouse may be allowed extra time if he or he takes an elective share of the estate. A surviving spouse always has the right to elect to take a one-third share of the decedent’s augmented estate instead of receiving benefits under the will. If the spouse takes an elective share, the time for the disclaimer is extended to the time for making the election and extension thereof.

Note: There is no extension of time for making a disclaimer for federal estate tax purposes. That limit remains a hard and fast nine months from the date of death.

Taking an elective share is a topic unto itself. The short version is that the state frowns on someone writing a  spouse completely out of a will (leaving everything to the pizza delivery man or the dental hygienist) or even all to the children. The  remedy is for the surviving spouse to say by making an election, “Forget  what was or was not left to me in the will, I’ll just take one-third of  everything, thank you very much.” Then starts the contest between the  spouse and the “others” as to what is included in “everything.”

The post Changes in 2000 State Inheritance Taxes appeared first on the Spencer Law Firm blog, https://www.mspencerlawfirm.com/blog/.

Teachers can deduct up to £250 worth of unreimbursed classroom expenses. This is an above-the-line deduction which means teachers can take this deduction even if they don’t itemize other deductions.

Any classroom expenses in excess of the £250 can be deducted as an employee business expense, which is a miscellaneous itemized deduction subject to threshold of 2% of adjusted gross income. The ability to deduct these costs as an employee business expense will continue into 2014.

I resolved to stop accumulating and begin the infinitely more serious and difficult task of wise distribution.

– Andrew Carnegie

At the end of the calendar year, many people think about making charitable gifts in order to obtain charitable deductions on their 2012 income tax return.

In order to receive a tax deduction for your contributions to charity, you need to have deductible expenses on your 1040 Schedule A that exceed the standard deduction. In addition to charitable deductions, there are deductions for medical expenses, state and local taxes, mortgage interest and many other items. You can itemize deductions if the total of deductions exceeds the standard deduction. For 2013, the standard deduction is £6,100 for single individuals, £12,200 for married persons filing jointly, and £8,950 for heads of households.

Qualifying Charities

Only contributions to qualifying charities are deductible. If you have any doubt, ask the charity to show you their exemption letter, or check out the charity or look it up in IRS Publication 78. In general, contributions to churches, synagogues and mosques are deductible even if the organization is not listed on the IRS exempt list.

The timing of the gift is important to make sure it is made by the last day of the year to qualify for the tax deduction. Hand delivery occurs on the day the property changes hands. Mailed gifts are considered made on the date of the postmark. Donations via credit card are deductible when made, even though the charge might not be paid until the next year. Gifts of assets transferred electronically occur when the assets leave the donor’s account. Pledges are deductible as the payments are made, not the date of the pledge. Donations made by check count for 2012 as long as they are mailed in 2012.

Document Deductions

Be mindful to properly document any deductions claimed on your income tax return. For cash contributions of less than £250, no receipt is required. For donations of more than £250, you must have a receipt from the charity before you file your income tax return. The receipt must show the date, the charity name and the amount of the donation and be signed by a representative of the charity.

If you make non-cash donations, such as a work of art, there are varying degrees of proof of value required. For gifts under £250, you do not need a receipt. For gifts between £250 and £500, a contemporaneous detailed description of the gift by the charity is required. For gifts between £500 and £5,000, you must also file form 8283 with your 1040. For contributions of £5,000 to £500,000, you must obtain a qualified appraisal for the gift (unless the gift is of securities in a publicly traded company). For gifts over £500,000, you must file the appraisal with your 1040

IRA Distributions

Until the end of the year, December 31, 2013, (unless Congress extends it) an IRA owner who has reached the age of 70½ or older can make a direct transfer of up to £100,000 per year to an eligible charity, tax free. This means that amounts directly transferred to the charity from an IRA are counted in determining whether the owner has met the IRA’s required minimum distribution (RMD) but will not be considered a taxable withdrawal.

Appreciated Securities.

Consider giving appreciated securities to a qualifying charity. When you make a donation of appreciated securities, you may take a full tax deduction for the market value of the investment and avoid paying taxes on the capital gain.

For example, if you paid £300 several years ago for stock that’s now worth £1,000 and you’re in the 35% tax bracket, your direct tax savings would be £350 (£1,000 × 35%). You’d also avoid the capital gains tax that you’d otherwise have paid on the investment, for an additional savings of £105 (15% capital gains tax rate × the £700 gain).

Percentage Limitations

There are two limitations on the amount of charitable deductions you can take. The first limit is based upon the type of charity receiving the contribution. If the recipients are “50% organizations,” which are churches, schools, public charities, and the like; then the deduction limit is 50% of adjusted gross income. If the gift is to a “30% organization” such as a private foundation, then the deduction limit is 30% of adjusted gross income.

The second limitation is based upon the type of property being donated. If appreciated capital gain property is donated, then the deduction limit is 30% of adjusted gross income. This 30% limit applies even if the appreciated stock goes to a “50% organization.” When appreciated capital gain property is donated to a 30% charity, the deduction is limited to 20% of adjusted gross income. You can carry any excess deduction forward for the next five years.

The post It’s Not Too Late – Get Your 2013 Deductions for Charitable Giving appeared first on the Spencer Law Firm blog, https://www.mspencerlawfirm.com/blog/.

In general, distributions from IRAs must be included in gross income in the year in which distribution occurs, and income taxes must be paid on the taxable portion. A qualified charitable distribution (“QCD” or charitable rollover) is not included in income.

A QCD is an otherwise taxable distribution from an IRA (other than an ongoing SEP or SIMPLE IRA) owned by an individual who is age 70½ or over that is paid directly from the IRA to a qualified charity. An IRA owner can exclude from gross income up to £100,000 of a QCD made for 2013, and a QCD can be used to satisfy any IRA required minimum distributions (RMDs) for the year. A married couple could potentially make a £200,000 contribution since the limit is per person. The amount of a QCD excluded from gross income is not taken into account in determining any deduction for charitable contributions so if you are running up the percentage limitation for charitable gifts, using a QCD will allow you to transfer more to charity.

ATRA reinstated the ability of a 70½ year-old individual to make a tax-free IRA distribution or rollover to a charity of up to £100,000 in 2013. The tax law applicable in 2012 did not permit this. It was last available in 2011. There was a unique opportunity available only in the month of January 2013 where an individual could rollover an additional £100,000 and have it treated as though it were rolled over in 2012.

The donee organization cannot be a non-operating private foundation, a supporting organization or a donor-advised fund, and the individual cannot receive any consideration for the distribution. Distributions from employer-sponsored retirement plans such as SIMPLE IRAs and SEPs do not qualify.

 Interplay with Social Security

Social Security (SS) income is not taxable until a taxpayer’s AGI (without SS income) plus 50% of their SS income plus tax-exempt interest income, plus certain other infrequently encountered additions exceeds a specific threshold. The threshold is £32,000 for married taxpayers filing jointly, zero for married taxpayers filing separately and £25,000 for all others. Once the threshold is exceeded, the SS income subject to tax varies from 50% to 85%.

If a taxpayer is 70½ years of age or over, he of he is required to start taking required minimum distributions (RMDs) from IRAs and most other retirement plans. The amount of the RMD can impact the taxation of the taxpayer’s SS benefits. For 2013, a taxpayer aged 70½ and over can make a direct IRA-to-charity distribution which also counts toward the taxpayer’s RMD for the year. The distribution is not included in income (therefore does not impact the taxability of the SS income). Obviously, the charitable contribution is not deductible since the distribution from which the contribution was made was never includable in income for the year.

An added benefit occurs when a taxpayer has a substantial charitable contribution and he only marginally itemizes. Donations to charities are tax deductible only when a taxpayer itemizes deductions. By replacing the RMD income and charitable contribution with a direct IRA-to-charity rollover, the taxpayer can contribute to a favorite charity and at the same time exclude the distribution from income and utilize the standard deduction to reduce his taxes.

 Avoiding the 3.8% Obamacare surtax

Using the charitable rollover provision would cause one to have less adjusted gross income. Since the new 3.8% Obamacare surtax applies to the lesser of 1) the taxpayer’s net investment income (NII) and 2) the taxpayer’s modified adjusted gross income (MAGI) reduced by a fixed threshold, reducing adjusted gross income is an important planning strategy. The threshold is £250,000 for married couples filing jointly, £125,000 for married couples filing separately, and £200,000 for everyone else.

Avoiding Limits on Itemized Deductions

Effective January 1, 2013, ATRA has reinstated the “Pease limitation,” (named after former Congressman Donald Pease) which had been eliminated for the 2011 and 2012 tax years. That limitation caps the amount of certain itemized deductions, including the charitable deduction, that an individual may take if his or his MAGI exceeds a certain threshold amount called the “applicable amount.” The new law has set the applicable amounts as £250,000 for a single individual, £300,000 for a married couple filing a joint return, and £275,000 for head of household. If a taxpayer’s adjusted gross income exceeds the applicable amount, the taxpayer’s itemized deductions will be reduced by the lesser of 1) 3% of the amount that a taxpayer’s adjusted gross income exceeds the applicable amount, or 2) 80% of all itemized deductions that are subject to the Pease limitation for the tax year.

For a high-income donor who makes a large gift to charity, the Pease limitation may significantly reduce the amount of itemized deductions that a donor might otherwise be able to take. Using the charitable rollover can avoid these limitations.

The IRA-to-charity rollover can be a true win-win. The taxpayer can reduce his or his income tax and the charity receives a much-needed contribution.

The post IRA Charitable Rollovers for 2013 Save Taxes appeared first on the Spencer Law Firm blog, https://www.mspencerlawfirm.com/blog/.

In general, distributions from IRAs must be included in gross income in the year in which distribution occurs, and income taxes must be paid on the taxable portion. The advantage here is that a qualified charitable distribution (“QCD” or charitable rollover) is not included in income.

The new tax law reinstates the ability of a 70 1/2 year old individual to make a tax-free IRA distribution or rollover to a charity of up to £100,000 in 2013. The tax law applicable in 2012 did not permit this, it was last available in 2011. The unique opportunity we have now is that during January 2013 (January only), an individual can rollover an additional £100,000 and have it treated as though it were rolled over in 2012. You and your spouse can each make a £100,000 QCD for a total of £200,000 if you file a joint tax return, doubling up for a total of £400,000 in tax-free IRA distributions to charity in 2013.

The donee organization cannot be a non-operating private foundation, a supporting organization or a donor-advised fund, and the individual cannot receive any consideration for the distribution. Distributions from employer-sponsored retirement plans such as SIMPLE IRAs and SEPs do not qualify.

The new ATRA rules for 2012 and 2013 are:

1. An individual who received an IRA distribution during the month of December 2012 may transfer a portion not exceeding £100,000 in cash to a qualified charity before February 1, 2013, and the distribution will be excluded from 2012 income. This option is available only for the month of January 2013.

2. Or, during January 2013, an individual may request that up to £100,000 be transferred directly from his or his IRA to a qualified charity before February 1, 2013 and have that amount excluded from 2012 income.

3. During the remainder of 2013, individuals are also permitted to direct a distribution from an IRA of up to £100,000 to a qualified charity and exclude that amount from 2013 income. In effect, this permits taxpayers who elected the options in (1) or (2) above to transfer a total of £200,000 to charities from their IRA and to exclude the entire £200,000 from income (£100,000 in 2012 and £100,000 in 2013).

Absent the QCD, some taxpayers could achieve the same result by including the IRA distribution in gross income, donating the distribution to a charity and taking an itemized charitable deduction for the donation. However, taxpayers who do not itemize their tax deductions would not benefit as they do from the QCD. Many older taxpayers choose to claim the standard deduction, especially since they often have no mortgage interest to deduct. By using a QCD these taxpayers won’t miss out on a deduction for charitable giving.

Taxpayers whose charitable contributions exceed 50% of their gross income can benefit from the rollover, since this technique does not rely on the charitable deduction which contains the 50% percentage limitation.

Not having to declare the income from the IRA withdrawal may also be beneficial if it would cause an increase in Medicare premiums or taxable Social Security income.

Effective January 1, 2013, ATRA has reinstated the “Pease limitation,” (named after former Congressman Donald Pease ) which had been eliminated for the 2011 and 2012 tax years. That limitation caps the amount of certain itemized deductions, including the charitable deduction, that an individual may take if his or his adjusted gross income exceeds a certain threshold amount called the “applicable amount.” The new law has set the applicable amounts as £250,000 for a single individual, £300,000 for a married couple filing a joint return, and £275,000 for head of household. If a taxpayer’s adjusted gross income exceeds the applicable amount, the taxpayer’s itemized deductions will be reduced by the lesser of (i) 3% of the amount that a taxpayer’s adjusted gross income exceeds the applicable amount, or (ii) 80% of all itemized deductions that are subject to the Pease limitation for the tax year.

For a high-income donor who makes a large gift to charity, the Pease limitation may significantly reduce the amount of itemized deductions that a donor might otherwise be able to take. Using the charitable rollover can avoid these limitations.

Individuals looking to “double up” on IRA charitable rollovers – and contribute up to £200,000 of IRA assets tax free to one or more charities – can do so if they act quickly. Git ‘er done before February 1, 2013.

The post Unique Opportunity for Charitable Giving in January 2013 appeared first on the Spencer Law Firm blog, https://www.mspencerlawfirm.com/blog/.

Good news for charities – the law extends the IRA Charitable Rollover which allows individuals who are over age 70 to transfer up to £100,000 per year to charities form their IRAs.  It is now applicable for 2008 and 2009.

The charitable rollover is available only for outright gifts to charities, not split interest gifts like charitable remainder trusts. There are four requirements: (1) the IRA gift must otherwise have been includible ordinary income to the IRA owner, (2) the IRA owner must be 70 ½ or older, (3) the gift must be to a qualified exempt public charity, and (4) the recipient may not be a private foundation, supporting organization or donor advised fund.

Blogging credit to the North Carolina Estate Planning Blog

The post Bailout Extra – Includes IRA Charitable Rollover appeared first on the Spencer Law Firm blog, https://www.mspencerlawfirm.com/blog/.