The American Taxpayer Relief Act of 2012

1. Rates: The Act increases the maximum income tax rate from 35% to 39.6% for individuals earning more than $400,000 and couples earning more than $450,000 ($400,000/$450,000). The new rates do not have an expiration date.
2. Itemized Deductions: The Act reinstates the phase-out of itemized deductions and personal exemptions (Pease Amendment), but at a higher income level than in the past: $250,000/$300,000 (no expiration date).
3. Alternative Minimum Tax (AMT): The Act includes a permanent fix, including a new, higher income threshold (indexed for inflation) at which the AMT applies.
4. Credits: The Act extends the expanded child tax credit and earned income tax credits for five additional years.
5. Affordable Care Act: For those earning more than $200,000/$250,000, it includes a supplemental Medicare tax levy of 0.9%.

1. Rates: The Act maintains the preferential 0%, 10% and 15% rate for taxpayers earning less than $400,000/$450,000. Those earning more than the threshold will pay a 20% rate.
2. Affordable Care Act: Those earning more than $200,000/$250,000 also pay a 3.8% net investment income tax.

1. Exemption Amount: The Act maintains the exemption amount at $5,000,000, indexed for inflation. For 2013, the exemption amount is $5,250,000.
2. Rates: The Act increases top gift and estate tax rates from 35% to 40%.

(The IRA Charitable Rollover allows individuals over age 70½ to directly transfer up to $100,000 per year from an IRA account to one or more charities. This transfer counts toward the minimum required distribution rule for IRA accounts.)

1. Extension: The Act extends the IRA Charitable Rollover for 2012 and 2013.

The American Taxpayer Relief Act of 2012 also extends several additional provisions of interest to charities and charitably-minded individuals, including:

1. The deduction of expenses for elementary and secondary school teachers (Sec. 201)
2. The special rule for contributions of capital gain real property for conservation purposes (Sec. 206)
3. The above-the-line deduction for qualified tuition and related expenses (Sec. 207)
4. The enhanced charitable deduction for contributions of food inventory (Sec. 314)
5. The basis adjustment to stock of S corporations making charitable contributions of property (Sec. 325), and
6. The extension of significant Medicare and other health provisions (Title VI)

Because these tax law changes do not make significant changes to current tax laws, they are not likely to have a significant impact on your charitable giving choices. There are concerns about additional changes to the tax code that would/could impact charitable giving in the future (see below under "What's Next?"). If you are in one of the following groups, however, you may find that the Act offers you new incentives to give:

1. High Income Earners: Those exceeding the $200,000/$250,000 and/or the $400,000/$450,000 income threshold levels will see taxes increase in 2013. The deduction available for charitable gifts may help to offset some of these additional taxes. However, this same group likely will be subject to the new income phase-outs on itemized deductions, so the value of their charitable deduction could be slightly reduced. Each individual will need to check with his/her tax preparer.
2. Those Formerly Subject to the AMT: The AMT stripped away the benefits of many income tax deductions and exemptions. If you are no longer subject to the AMT, charitable gifts may prove to be an effective way to lower your tax bill.
3. Investors: Charitable gifts of highly appreciated assets continue to make sense for everyone, as you benefit from both an income tax deduction and avoidance of capital gains tax. If you are above the $200,000/$250,000 and $400,000/$450,000 thresholds, these gifts are even more effective at lowering the tax bite.
4. Those with Overfunded IRAs: The extension of the IRA Charitable Rollover will allow individuals who are required to take distributions from their IRA accounts to once again directly transfer some of those assets to charity. In so doing, they avoid the IRA distribution being added to their adjusted gross income for the year, which can trigger many of the new taxes for higher income earners.