LACGP Legislative Update by Bill Hranchak - April 21, 2016
2015
IRA Charitable Rollover – Donor discussions before year end Thanksgiving is next week and we are still waiting for Congress to pass legislation to extend the Charitable IRA Rollover provision. In summary, this provision allows distributions from traditional IRAs to be tax free if:
• Made directly to a qualified charity • By an owner who is 70 1/2 or older • In the amount of $100,000 or less annually.
The provision benefits those not itemizing deductions and those subject to reduced deductions or higher tax rates because of the increase in their income. The expiring provision has been extended the last seven years. Legislation extending the provision for 2012 was not signed into law until January 2013. So there is a strong possibility the provision will be extended for 2015.
However, besides telling your donors to hold their breath, you should consider suggesting:
• They consider making a charitable rollover now, in any amount, from their Roth IRA since those amounts are not taxable. • They consider making a direct charitable rollover now from their traditional IRAs. Rollovers are always allowed even without legislation and, depending on their facts, may not increase taxes or only increase them nominally. • To help with their decision, they should prepare a projection of their tax liability assuming the direct rollover is taxable versus tax free. They may find out, depending on the rollover amount and their other income, their tax liability is the same or only nominally higher because: o The increase in income is not enough to change their regular tax rate or their liability for the 3.8% net investment income tax, o The increase in AGI is not enough to reduce their itemized deductions or only reduce them nominally, and o The rollover is fully offset by your charitable contribution deduction because of other sources of income. o Any increase in tax would be eliminated if the provision is extended for 2015.
Additional Action to Consider Please visit the Independent Sector’s website which provides opportunities and suggestions to encourage Congress to extend this and other donor enhancements. https://www.independentsector.org/extenders_takeaction
Senate Approves IRA Charitable Rollover Only for 2014 The Senate passed H.R. 5771 yesterday which includes a one year extension of the tax extenders including the IRA Charitable Rollover for all of 2014.
AFR Under Section 7520 for September 2013 Applicable federal rate for determining the present value of an annuity, an interest for life or a term of years, or a remainder or reversionary interest 2.0%.
News You Can Use The Congressional Budget Office issued a report in May 2011 projecting the potential impact of 11 proposals to alter the charitable giving incentive in the federal tax code. The report found that both charitable giving and federal tax receipts would increase if Congress either (1) applied the tax deduction to all taxpayers (itemizers and non-itemizers alike) but imposed a minimum floor on contributions of $500 for individuals and $1000 for couples, or (2)) converted the deduction to a 25% tax credit for everyone who gave more than the $500 per $1000.
Several Outstanding Proposals to Alter the Charitable Deduction President Obama’s 28% Limit: President Obama has proposed limiting the value of charitable and itemized deductions for upper-income taxpayers, capping the deduction at 28%, regardless of whether the individuals are in the 33% or 35% tax brackets. This proposal has also been included in the President’s fiscal year 2014 budget and his other four annual budget proposals, the American Jobs Act, and his deficit reduction plan submitted to the super committee.
