If you are someone who is interested in charitable causes, there are reasons to be concerned about the recent budget proposal by President Obama. Many charitable organizations also are concerned because Obama’s 2014 proposed budget would cap the deduction available for donations made to charities at 28 percent regardless of the donor’s tax bracket. Currently, those in the top tax bracket of 39.6 percent receive a reduction of $3,960 for every $10,000 that they donate to a charity, but Obama’s budget proposal would reduce that amount to only $2,800 per $10,000 donated.
This proposed cap on charitable giving could have a negative impact on many charities that are still struggling from reduced donations caused by the recent recession and slow recovery. The impact of the changes on those in top tax brackets is compounded by the fact that these same taxpayers are already facing increases in the form of a Medicare surcharge as well as more in income taxes and higher capital gains taxes because of changes in the American Taxpayer Relief Act.
As if all of these changes did not create enough cause for concern about charitable giving, Obama continues to advocate the so-called “Buffet Rule” on top of all of these other policies that increase the tax liabilities of those who are most likely to include significant gifts to charities as part of their estate plan. The Buffet Rule would subject those whose incomes start at a million dollars per year to a minimum tax of thirty percent. In other words, the minimum rate under the Buffet Rule would only be two percent more than the 28 percent deduction allowed for charitable contributions.
These tax policies may have unintended consequences by reducing the contributions to worthy causes made through estate planning devices by many in the top income tax brackets. A study revealed that 2.2 percent of donors in the top tax brackets account for 27 percent of all donations to charities. The cap on charitable giving proposed by the Obama budget would cost these charitable organizations as much as $6 billion according to some estimates.
The bottom line is that changes in tax policy can have a dramatic impact on estate planning considerations. When an experienced New Mexico estate planning attorney evaluates your assets and goals, the attorney can determine the best approach for achieving your goals including reducing your tax obligation and making sure more of your gift goes to the charitable organization.
The above information is designed solely to illustrate general principles of law, and does not constitute a specific legal opinion on individual cases. We suggest that you contact experienced legal counsel for a specific opinion tailored to your individual circumstances.
The New Mexico estate planning law firm of Jay Goodman and Associates offers a free consultation in our centrally located offices in Santa Fe and Albuquerque so that we can evaluate your needs and objectives and develop the best estate planning strategies for accomplishing your objectives while minimizing the costs. Call us today to schedule your free consultation at (505) 989-8117 to learn about your rights.
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