The American Taxpayer Relief Act of 2012, the one enacted to avert the ‘fiscal cliff,’ has five provisions that are especially related to tax-exempt organizations. The first four you may remember expiring December 31, 2011. These are officially reinstated, and may be counted as retroactive to January 1, 2012.
- Corporate contributions of stock: Shareholders of S Corporations previously had to reduce their shareholder basis by the pro-rata share of the property’s fair market value. The reinstated provision allows the shareholder taxpayer to reduce the basis by the pro-rata share of the corporation’s basis of the contributed stock.
- Contributions from Traditional and Roth IRA’s: For tax years 2012 and 2013 only, a 70 ½ or older taxpayer may contribute up to $100,000 from an IRA without including the amount in gross income. Because this provision is retroactive, a taxpayer that took out a distribution in 2012 and made a donation to charity can treat the amount as an eligible rollover. This is good news to share with your 2012 donor base.
- Food inventory donations: Businesses who donate food to tax-exempt organizations may take up to a 10 percent aggregate net income deduction. (‘Food’ is defined as ‘apparently wholesome food’ – intended for human consumption.)
- Real estate conservation-purpose contributions: If donated real property qualifies for conservation use, then the charitable deduction is now 50 percent instead of 30 percent of the taxpayer’s contribution base.
- Limit on deductibility of charitable contributions: For individual incomes of $250,000 or more and married joint returns with $300,000 or more income, many itemized deductions, such as charitable donations, will have reduced deductibility. The calculation is: reduce total itemized deductions by the lesser of three percent of AGI over the threshold or 80 percent of the itemized deductions.
It is always advisable to refer your donors to personal tax preparers for the effect on individual tax situations. However, by having an understanding of the new rulings, your organization may gain insight on strategies to increase giving from current and prospective donors.