More On Tax Planningfrom The Advisor's Professional Library
- Health Insurance: Health and Medical Savings Accounts A Health Savings Account is a trust created exclusively for the purpose of paying qualified medical expenses of an account beneficiary. Although they are popular, they are not without their pitfalls and the regulations can be complicated. Learn more about how to avoid federal taxation on the accumulation and distributions of HSA.
- Precious Metal Taxation Precious metals can be used to better diversify a portfolio but can be volatile. The tax implications of investing in these types of assets vary depending upon the situation.
The Senate’s federal budget plan seeks to limit the amount by which affluent taxpayers can reduce their tax bills by itemizing deductions, including charitable donations. But such a plan is unlikely to go far in the House.
A report by The Chronicle of Philanthropy noted that President Barack Obama has called for bringing the tax savings on itemized deductions for wealthy taxpayers to 28% from its current 39.6%, and is likely to do so in his 2014 budget, which is expected to be released the week of April 8, according to Bloomberg. The limit would apply to individuals with more than $200,000 in adusted gross income or couples making more than $250,000.
The Senate plan does not specifically endorse the 28% level, according to the report.
A House Ways and Means Committee panel is examining how nonprofits could be affected by an overhaul of the tax code, something that hasn’t happened since 1986.
Rep. David Reichert (R-WA), who chairs the panel, told The Chronicle that he had never supported capping the charitable tax deduction at 28%. Doing so, he said, would have a negative effect on giving. It would be a way of raising taxes to pay for government spending.
He added that none of his Republican colleagues would support “any sort of cap” on charitable giving.
The Chronicle did the arithmetic on the 28% plan vs. the current 39.6% rate: A $1,000 donation would cost the taxpayer $720 after a $280 deduction, compared with $604 following a $396 deduction—a 19% increase.
The report laid out several other ways to limit itemized deductions listed in the Senate budget plan. One alternative would be a dollar cap on the amount of deductions.
Another would be a 2%-of-income floor on giving. With this, a 12% tax credit would be available only for amounts beyond 2% of a taxpayer’s adjusted gross income.
Yet another possibility, endorsed by the economist Martin Feldstein, would put a cap of 2% of AGI on tax benefits derived from deductions, but would exclude charitable donations.
Reichert seemed more amenable to consideration of a 2%-of-income floor on giving. He said his panel had heard from numerous sources that this would not impinge on giving and indeed might increase it.
Meanwhile, a new bill introduced in the House last week would allow volunteers who drive their own vehicles as part of their charitable work to receive the same tax benefits for mileage reimbursements as those with paid jobs.
The bill, with the working title Charitable Driving Tax Relief Act, would also reduce paperwork for charities by eliminating the requirement to report mileage reimbursements to the IRS.