This time every year we count our blessings and give a little to those in need. The question is, how much? For some, it’s a means of year-end tax planning, estimating annual tax owed based on tax laws finalized timely for such decisions (key word: timely). Anyway, back to the topic at hand…It goes without saying those who make more can (should?) give more. For the past several years the incentive to give was more than just the jolly feeling received in return; there was a tax benefit to it as well. As the 2013 tax year comes to a close, so may some wallets.
The limitation on itemized deductions has been put on the back burner since Tom Cruise convinced (suckered?) Katie Holmes to marry him. Most people know this limitation as the Pease limitation, named after former Congressman Donald Pease (and by most people I mean the 10 individuals who pay attention to tax law). Essentially (and now for the fun, technical stuff), it was enacted to tax the rich by reducing the benefits received from certain itemized deductions, one of the biggest being charitable giving. Beginning in 2013, the limitation will go in affect for taxpayers with adjusted gross income of $300,000 or more for joint filers and $250,000 or more for individual filers, indexed for inflation. The limitation is calculated by reducing allowable itemized deductions by the lesser of: 1) 3% of the excess of AGI over the threshold, or 2) 80% of the amount of itemized deductions otherwise allowable for the tax year.
Does this mean you shouldn’t give? Depends on how fortunate you are. Scrooge is against it and his AGI is a problem, but it’s a personal decision, and you can’t put a price on helping the needy.