As you’re undoubtedly aware, early this year Congress passed last-minute legislation, and the President has signed it, to avert the so-called “fiscal cliff.” Included in the “American Taxpayer Relief Act of 2012”
are various provisions that have the potential to effect taxpayers and charitable organizations; most notably, retroactive renewal of the “Tax Free IRA Rollover” for 2012 and reinstatement for 2013. It will once again expire after this year.
The Tax Free IRA Rollover was first passed in 2006 and has been used by individuals ever since to support the charitable organizations they care about. It is a simple and effective way to do so and presents many advantages to taxpayers who qualify.
Specific information on the Tax Free IRA Rollover follows, along with information on some of the other most notable provisions in the new law. Please contact us if you have any questions about the Tax Free IRA Rollover provision, or any of the information that follows.
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NOTE: Please consult your own tax and/or legal advisor regarding the applicability of this information to your circumstances.
Highlights of the American Taxpayer Relief Act of 2012: Tax Free IRA Rollover
Donors age 70½ or older are eligible to transfer up to $100,000 from their IRAs to qualified charities without being subject to taxation. The gift/distribution must be sent directly to the charity by the donor’s IRA custodian (bank, brokerage, etc.) and may be counted toward all or part of a donor’s “required minimum distribution” (RMD).
Qualified IRA distributions made by Feb. 1, 2013, may be claimed retroactively for the 2012 tax year. Furthermore, if you took a distribution from an IRA in December 2012 that did not comply with the “direct transfer to charity” requirement, you may make a contribution to a qualified charity before Feb. 1, 2013 and treat it as a direct transfer; and if you had the foresight and made a direct transfer to charity anytime in 2012, it also qualifies under the retroactive provision.
Finally, all of the rules and restrictions of the original law still apply, such as disallowing any kind of benefit to the donor as a result of their IRA rollover (athletic ticket preference, etc.). New income tax rates increase for high-income households.
The new law permanently extends tax rates that were established in 2001 and 2003 for single taxpayers earning less than $400,000 a year and married couples earning less than $450,000. It increases the tax rate for high-income households earning more than these amounts to 39.6 percent. The new 2013 marginal tax rates will be 10 percent, 15 percent, 25 percent, 28 percent, 33 percent, 35 percent and 39.6 percent.
New capital gains tax rates for high-income households:
The capital gains and dividend tax rates for those in the new highest income tax bracket will increase to 20 percent. The capital gains tax rate will remain at 15 percent for taxpayers whose income falls at or above the 25 percent tax bracket but below the new 39.6 percent rate. There will be no capital gains tax for taxpayers whose income falls in tax brackets below 25 percent.
New estate, gift and generation-skipping tax rates with exemptions retained:
The new law makes permanent the current unified gift, estate and generation-skipping exempt amounts at the $5 million level (per individual). This amount will be indexed for inflation in future years.
The estate tax rate increased to 40 percent from the current 35 percent. The new law also allows any unused portion of the exemption to be transferred to a surviving spouse at the first to die of a married couple. This transferability provision is permanent.