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Will We See Less Giving This Holiday Season

Will We See Less Giving This Holiday Season

The holiday season is typically a time of giving for many individuals. In addition to planning what to give relatives, close friends, and colleagues, people may be deciding how much to donate to their favorite charities.

There are a lot of factors to consider when you make a gift to charity. However, one issue that hasn’t been considered since 2009 is the potential phase-out of itemized tax deductions–including charitable contributions.

Taxpayers got a break in 2010 from having itemized deductions phased out, and that break was extended for two more years as Congress approved the Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010. Then, as America started walking toward the fiscal cliff late in 2012, Congress reconvened to pass the American Taxpayer Relief Act of 2012. This new bill reintroduced the phase-out of itemized deductions for single filers with Adjusted Gross Incomes (AGIs) greater than $250,000 and joint filers with AGIs over $300,000. For filers over this threshold, itemized deductions will be reduced by 3% for every dollar above the threshold amount, capped at 80% of their deductions. Let’s take a look at how the phase-out actually works:

Let’s say that Sam and Sally Gifter have a combined income of $400,000 and itemized deductions of $60,000. Since they are joint filers, the income amount above the threshold is $100,000 ($400,000 minus the $300,000 threshold). This means their itemized deductions will be reduced by $3,000 ($100,000 times 3%). Their deductions are now decreased from their previous allowable of $60,000 to $57,000.

Sam and Sally know that this year will be a higher income year for them than in future years, so the couple has been contemplating giving a little extra to their favorite charity. The question is: Should they still give (and how much?), knowing that part of their itemized deductions will be phased out?

Keeping the above example in mind, it’s important to note that their phase-out is not affected by the amount of the Gifters’ itemized deductions; instead, the phase-out increases as their income increases. So if their itemized deductions (including donations) increase to $70,000 because they are feeling especially generous this year, their phase-out “loss” will still only be $3,000 (down to $67,000).

The factor that might affect their itemized deductions is if their income is higher this year due to a bonus, raise, or otherwise. For example, if Sally received an additional bonus of $150,000 and their total income increased to $550,000, then their itemized deductions would get reduced by another $4,500 ($150,000 times 3 %), for a total reduction of $7,500.

Our advice: Before Sam and Sally decide how much to give to their favorite charity this year, they should consult both their tax and financial advisors. They may need to do so again in future years, depending on how much their income changes.

Of course, tax considerations aren’t the only reason people give to charity. However, these tax changes could impact individuals who are on the fence as to exactly how generous they’d like to be. The precise impact on charitable organizations this year and going forward remains to be seen.

 

 

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Please remember to contact RegentAtlantic if there are any changes in your personal or financial situation or investment objectives for the purpose of reviewing our previous recommendations and services, or if you wish to impose, add, or modify any reasonable restrictions to our investment management services. A copy of our current written disclosure statement discussing our advisory services and fees is available for your review upon request. This article is not a substitute for personalized advice from RegentAtlantic. This information is current only as of the date on which it was sent. The statements and opinions expressed are, however, subject to change without notice based on market and other conditions and may differ from opinions expressed in other businesses and activities of RegentAtlantic. Descriptions of RegentAtlantic’s process and strategies are based on general practice and we may make exceptions in specific cases.

Please remember that RegentAtlantic does not give tax advice. Please consult with the tax professional of your choosing prior to implementing any of the strategies discussed in this article.

This information is based on RegentAtlantic’s current understanding of tax legislation. Congress may change this legislation at any time.

Important disclosure information

Please remember that different types of investments involve varying degrees of risk, including the loss of money invested. Past performance may not be indicative of future results. Therefore, it should not be assumed that future performance of any specific investment or investment strategy, including the investments or investment strategies recommended or undertaken by RegentAtlantic Capital, LLC (“RegentAtlantic”) will be profitable.

Please remember to contact RegentAtlantic if there are any changes in your personal or financial situation or investment objectives for the purpose of reviewing our previous recommendations and services, or if you wish to impose, add, or modify any reasonable restrictions to our investment management services. A copy of our current written disclosure statement discussing our advisory services and fees is available for your review upon request.

This article is not a substitute for personalized advice from RegentAtlantic. This article is current only as of the date on which it was sent. The statements and opinions expressed are, however, subject to change without notice based on market and other conditions and may differ from opinions expressed in other businesses and activities of RegentAtlantic. Descriptions of RegentAtlantic’s process and strategies are based on general practice and we may make exceptions in specific cases.

RegentAtlantic does not provide legal or tax advice. Please consult with a legal and or tax professional of your choosing prior to implementing any of the strategies discussed in this article.

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