Presbyterians and the fiscal cliff: potential impact on your church's bottom line [Reformed Caucus]

The Layman Online ^ | 12/3/2012 | Carmen Fowler LaBerge

[Alex Murphy]

* Disclaimer: The following should not be considered legal, financial or tax advice. Every individual situation is unique and you are encouraged to consult with your tax and financial advisor before year end.

There's a lot of hype, confusion and speculation related to the so-called "fiscal cliff" America is facing as the calendar rolls over from 2012 to 2013. At the Presbyterian Lay Committee, we're getting questions from donors and churches alike about what they might anticipate in terms of the impact on charitable giving. The answer all depends on what happens between now and the end of the year and what, if any, current tax incentives are continued in the new year.

If no agreement is reached here's a rundown of what will happen:

• The Bush-era tax cuts will expire returning tax rates to 2001 levels (this increases effective rates on 80% of Americans and the two highest brackets rise from 33 and 35 percent to 36 and 39.6% respectively).
• The top tax rate on long-term capital gains will go from 15% to 20% and lower income taxpayers who now pay 0% on capital gains, will owe 10% (taxes on capital gains taken on assets owned more than 5 years are reduced by 2% in each case).
• Tax rates on qualified dividends will rise. Investors will owe ordinary income tax on dividends (up to 39.6%).
• The estate tax will increase. (Right now, each tax payer is entitled to a tax credit that wipes out the estate tax due on the first $5.12 million of an estate. The tax rate above that threshold is 35 percent. On January 1, the exemption will drop to $1 million and the tax rate will increase to 55% on everything above $1 million).
• The 2% payroll tax cut holiday will expire (which effectively increases taxes withheld by employers for all working Americans by $1000 per employee).
• The enhanced dependent care credit, the enhanced child credit and the enhanced adoption credit will expire. The earned-income credit enhancement for families with three or more children will also expire.
• The earned-income credit income limit for qualification will expire.
• Enhanced student loan interest deduction will expire.
• The exemption for mortgage debt forgiveness will expire.
• Four tax cuts that have already expired will not be renewed:
  • AMT adjustment
  • Deduction for state and local sales taxes
  • The educator's classroom deduction
  • IRA charitable donation provision for taxpayers over 70 1/2
• $110 Billion in automatic spending cuts will be triggered starting January 2, 2013.

One new tax that is going into effect as a part of the Healthcare mandate
There's also the matter of the 3.8% surtax on investment income that begins January 1 to fund Medicare under the new federal healthcare mandate. This tax applies to people filing jointly with adjusted gross income over $250,000, married individuals filing separate returns with income over $125,000 and all other individuals with income over $200,000.

What if there is agreement?
If there is an agreement in Washington is it anticipated that tax rates will still rise on the wealthiest Americans. As the specifics of any plan are unknown, one can only speculate on scenarios.

If the agreement includes the capping of deductions and/or the elimination of the mortgage interest deduction, the impact for the average Presbyterian's tax situation could be significant. Presbyterians tend to be home owners with mortgages and traditionally itemize their deductions because their charitable giving exceeds the standard.

If the agreement does not include lower rates of taxation on investment income (capital gains and dividends specifically) many older Presbyterians who rely on investment income will be significantly impacted. People will have a diminished sense of their own "wealth" and their confidence in giving to the church and other non-profit organizations will likely decline.

If the estate tax threshold is lowered to $1 million as scheduled, the ability of Presbyterians to make generational transfers of their wealth will dramatically impact the long-term giving ability of the next generation.  In the short term, this could have a positive effect on older Presbyterians giving from their accumulated wealth to trusted non-profits to escape the 55% death tax.

If the IRA charitable donation for taxpayers over 70 1/2 is not extended, churches and non-profits will feel the effect as one tax-deferred means for older Americans to make charitable contributions out of their accumulated assets is eliminated.

Who is doing what to help?
We appreciate and support the work of our ministry partners at the Evangelical Council for Financial Accountability as they work to insure that federal tax reform does not unduly disrupt the ability of Christian non-profit organizations to thrive in America.

What Congress may or may not do is uncertain. You are encouraged to give generously before year's end to those Christian churches and charities that are advancing the Kingdom purposes of God in the world today.

There is currently no cap on the deductions you can take for charitable giving and the opportunity to give directly from your IRA exists for those over 70 1/2 until year's end.

Again, this should not be considered legal, financial nor tax advice. Talk to your estate advisor about you particular situation.

[Alex Murphy]

What if there is agreement?
If there is an agreement in Washington is it anticipated that tax rates will still rise on the wealthiest Americans. As the specifics of any plan are unknown, one can only speculate on scenarios.
If the agreement includes the capping of deductions and/or the elimination of the mortgage interest deduction, the impact for the average Presbyterian's tax situation could be significant. Presbyterians tend to be home owners with mortgages and traditionally itemize their deductions because their charitable giving exceeds the standard.
If the agreement does not include lower rates of taxation on investment income (capital gains and dividends specifically) many older Presbyterians who rely on investment income will be significantly impacted. People will have a diminished sense of their own "wealth" and their confidence in giving to the church and other non-profit organizations will likely decline.
If the estate tax threshold is lowered to $1 million as scheduled, the ability of Presbyterians to make generational transfers of their wealth will dramatically impact the long-term giving ability of the next generation.  In the short term, this could have a positive effect on older Presbyterians giving from their accumulated wealth to trusted non-profits to escape the 55% death tax.
If the IRA charitable donation for taxpayers over 70 1/2 is not extended, churches and non-profits will feel the effect as one tax-deferred means for older Americans to make charitable contributions out of their accumulated assets is eliminated.

Who is doing what to help?
We appreciate and support the work of our ministry partners at the Evangelical Council for Financial Accountability as they work to insure that federal tax reform does not unduly disrupt the ability of Christian non-profit organizations to thrive in America.

What Congress may or may not do is uncertain. You are encouraged to give generously before year's end to those Christian churches and charities that are advancing the Kingdom purposes of God in the world today. There is currently no cap on the deductions you can take for charitable giving and the opportunity to give directly from your IRA exists for those over 70 1/2 until year's end.

[wjcsux]

later

[Persevero]

“Because MONEY is the Number One concern of any organized religion. “

You paint with too broad a brush. I’ll mention just the Salvation Army, which is a church (I am not a part of it, never have been, so it’s not personal.)

The head of the whole thing makes $36,000 per year. I won’t bother to quantify the amount of serious good they do, from housing entire families so as not to break them up to drug and alcohol rehab; all free.

Don’t let the mud get combined with the gold in your head. “Organized religion,” or organized anything, is not the problem. Greed, sin, theft, etc. is the problem, and one does not have to be an organized religion to indulge in it.