New Tax Measures: How They Could Affect Giving in 2013

Tax-Rate Rise

Who’s covered: Individuals with taxable income of more than $400,000 ($450,000 for married couples).

What they face: Tax-rate increase from 2012’s top rate of 35 percent to 39.6 percent.

How it affects a donor’s tax break: Because the charitable deduction is tied to a person’s tax bracket, these donors will now save $39.60 in taxes for every $100 they give to charity. In other words, their gift will cost them only $60.40, down from $65 under the 35-percent rate.

How giving could be affected: Economic studies have shown that donors give more when the price of their gift falls. The Urban Institute projects that the package of new tax measures will increase giving by 1.3 percent, or $3.3-billion, mainly due to this new higher rate.

Capital-Gains Tax Increase

Who’s covered: Individuals with taxable income of more than $400,000 ($450,000 for married couples).

What they face: Capital-gains tax rise from the 15-percent rate in 2012 to 20 percent in 2013.

How giving could be affected: People with significant capital gains now have an additional incentive to donate stock or property that has risen sharply in value. Not only will they avoid the higher capital-gains tax, they will get the bigger 39.6-percent tax savings on their gift.

Deduction Limits

Who’s covered: Individuals whose adjusted gross income exceeds $250,000 ($300,000 for married couples).

What they face: Cuts in certain deductions, including those for gifts to charity, would be in place using a complicated formula that essentially reduces deductions the higher income a person has, up to a maximum of 80 percent for the wealthiest taxpayers.

How giving could be affected: Tax experts don’t expect these so-called Pease limits to have a major impact on giving, though they could discourage a small set of wealthy donors who do not have many itemized deductions beyond charitable gifts. Jon Bakija, a professor of economics at Williams College, says his research shows that the limits, which have been in place in the past, reduce the incentive to give only among wealthy donors who live in states without income taxes, like Florida, Texas, and Washington.