2012 taxes

Married Couples with AGIs of $60,550 to $72,500 Watch Out!

Not knowing what will be with the expiration of the Bush tax cuts is finally getting some notice in the media – to put it mildly.  Just trying to sort out what will happen is no simple task and something I am furiously working on (from the charitable gift planning perspective).

In my initial research into these issues , I discovered something very disturbing – nothing to do with charitable giving but I strongly suggest reading this article carefully if you and your spouse earn up around $100,000 in total.

For married couples with adjusted gross incomes (AGIs) between $60,550 to $72,500, the impact of the expiration of the Bush tax cuts (which will happen if the President and the House can’t come to terms soon) will be incredible.  The increase in actual tax dollars in 2013 from this group will be between $7,871 and $9,425 for each household.  How is that for a group that is probably struggling already to pay bills?

In other words, if this ends up being your AGI (and it is hard to tell because AGI is only really known after knowing your deductions when doing your taxes), you might owe the IRS between $655 and $785 extra a month – in addition to your current living expenses.

How do I know this?  Simple math.  Under the current law, this AGI range for married filing jointly pay at the 15% federal bracket level.  Come January 1, 2013, this unlucky group will be pushed into the 28% federal bracket.  That is an increase of 13%.  Most of the bracket increases will be 3% except for the highest (earners of $398,350 and up – they get a 4.6% increase) and the lowest (married earners of $17,900 or less get a 5% increase).

So, there you have it – a middle class, married filing jointly group gets slammed with Hurricane Bush Tax Cuts Expire.  Look out for updates on this storm as they come in!

If you are interested in looking at the various brackets (before and after), check out this story from Forbes by clicking here.

New American Holiday: 1/1/2013 – Tax Doomsday

Did you know that December 31, 2012 is not only New Year’s eve this year, it is also the eve of tax doomsday?

I already started mentioning this oncoming situation in February, so check out my overview of the issues:  http://theplannedgivingblog.wordpress.com/2012/02/05/2012-incomeestategift-tax-update/.

For those who want more than  just an overview, check out this excellent article on the Planned Giving Design Center: http://nyct.pgdc.com/pgdc/perfect-storm-prospective-expiration-bush-tax-cuts. What I love about the article is the list of 17 negative tax consequences that will kick in on January 1, 2013 should Congress and the President not act on this.

In truth, Congress will do something – either a partial or whole fix or a “kick the can” temporary solution.  What fundraisers and planned giving officers in particular need to be aware of is the opportunity that many older supporters should be seeing their estate planning attorneys before the end of the year.

What can you do? Offer tax/estate planning update seminars, send email alerts and other educational pieces, stir up the pot.  People don’t change their estate plans often – if this is the year that frightening tax doomsday scenarios push your prospects to revisit their plans, you want them remembering your organization in those conversations.

2012 Income/Estate/Gift Tax Update

Wondering about the state of the estate taxes and other tax brackets in 2012 (compared to 2013 if Congress does nothing this year to prevent this from happening)?  Take a look at the following chart:

U.S. Taxes 2012 v. 2013

2012 Top Tax Brackets

2013 Top Tax Brackets

Income Tax

35%

39.6%

Estate Tax

35%

55%

Capital Gains Tax

15%

20%

Dividends

15%

39.6%

Generation Skipping Tax

35%

55%

 

Exemptions

2012 Exemptions

2013 Exemptions

Lifetime Estate Tax Exemption

$5.12 million

$1 million

Gift Tax Exemption

$5.12 million

$1 million

Generation Skipping Tax Exemption

$5.12 million

$1.3 million

What should be jumping out at you upon seeing this chart?

Firstly, barring action by Congress, many people need to be addressing their estate plans this year.  This is a golden opportunity for planned giving fundraisers to encourage inclusion in wills and other estate plans knowing that this is a year that people should be making changes.

Secondly, individuals potentially facing estate taxes should be considering significant gifting to heirs this year to take advantage of the $5.12 federal estate/gift tax exemption, as well as possibly using the generation skipping tax exemption this year.  For planned giving fundraisers, the 2012 gifting options might open opportunities for gifts like lead trusts.

There will definitely be changes to all of the numbers in the above chart either before the end of 2012 or sometime in 2013.  In the meantime, anyone concerned about estate taxes will still have to take action, just in case.

My advice to the planned giving world is to educate your donors and prospects on the estate planning flux were are currently facing, and keep pushing the bequest and other planned gift messages more than ever.  How often to people change their estate plans?  Usually  not often…except maybe for this year or next.