Tax & Estate Planning

Tax Legislation and Charitable Giving

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Expiration of IRA charitable rollover provision
The provision which allowed a qualified charitable distribution (QCD) from an IRA expired on December 31, 2013. Although Congress has reinstated QCDs a few times since their inception in 2006, there is no certainty that they will be reinstated for 2014 and beyond.

ITEMIZED DEDUCTIONS

Tax treatment on itemized deductions

Much has been made about the reinstatement of the itemized deduction limitation known as Pease, which had been dormant since 2009. The Pease provision limits the value of the total itemized deductions for individual taxpayers with an AGI above $254,200 (single filers) and $305,050 (couples filing jointly). For those impacted, Pease reduces itemized deductions by 3% of the amount by which a taxpayer’s AGI exceeds the applicable threshold.

While many may think of Pease as affecting their charitable contribution deduction, it is paramount to remember that the Pease limitation impacts all itemized deductions, including state and local taxes, real estate taxes, and mortgage interest.

When you think about itemized deductions in terms of non-charitable and charitable, you may in turn bucket them as “fixed amount” deductions and “flexible amount” deductions, respectively. With that in mind, often times a taxpayer’s “fixed amount” deductions (e.g., state and local taxes, real estate taxes, and mortgage interest) amount to more than 3% of the amount by which the taxpayer’s income exceeds the Pease threshold, thereby having no effect on the value of any “flexible amount” deductions (i.e., charitable gifts).

Steps you may take now

Tax-related matters are often complicated, which is why we always recommend you consult your legal or tax advisor for guidance on your specific tax situation.