October 29, 2005

A Little-Noticed Tax-Law Change Could Cost Billions

Filed under: MSM Biz/Other Ignorance,Taxes & Government — Tom @ 1:24 pm

Unbeknownst to almost everyone, deductions for charitable contributions (near the end at the link) have been changed in a big way between now and the end of the year:

Increased Deduction for Cash Contributions. The current tax law allows a taxpayer to deduct charitable contributions up to 50% of their adjusted gross income (AGI) in any tax year. This limit has been increased to 100% for contributions made between August 28 and December 31, 2005 …… This increased deduction only applies to gifts of cash, not gifts of securities or other property, which continue to be limited to 30% of AGI.

(Note: I believe the sentence skipped over in the ellipse is inaccurate.)

This was supposedly designed to help storm victims, but applies to any charitable contributions to any qualified charity, whether storm-related or not.

This is obviously an incentive for the very wealthy to figure out how to minimize their tax liability between now and the end of the year that will likely end up doing little to help hurricane victims. This is good news for symphonies, ballets, arts festivals, and personal foundations, and will only benefit Florida and the Gulf Coast if rich donors are inclined to send more money in that direction. Given that there is no additional incentive for them to do so, I don’t see much of that happening. This is so typical–the ones who need to know about this change will find out from their financial advisers, and the rest of the country will have no idea how much of a giveaway just occurred.

Why haven’t the congressmen and senators who always complain about what an across-the-board tax cut will “cost” asked about how much federal tax receipts will drop because of this barely-known change? The fact is, we have no idea. It could be billions, and it has “giveaway to the rich” written all over it. At least they had the sense not to increase the appreciated property limit. Or maybe that occurred in another bill that managed to avoid attention.
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Update: Yes, I know that the Alternative Minimum Tax may kick in, but I believe that will usually not change the advantageousness of high-AGI-percentage donations. Besides, it could be that exemption from the AMT calculation may be built into the legislation.

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