by Mark Jones

Taxes have gone up and we are all concerned about the potential negative impact on giving to our ministries. Should we be bracing for lower donations, or is it possible the tax code changes could actually be beneficial?

To find out, let’s take a look at several provisions in the new tax code.

Tax Rates. The tax rates went up for the highest income earners, as you can see here. 

Before looking at an example of the new tax rate’s impact for a high income earner, let’s look at another provision.

Itemized Deductions. Itemized deductions for higher income earners has a phased out provision. Coupled with the higher tax rate, this sounds like it will create a double blow to our largest donors. Here are the details on this phase-out provision: Singles with incomes over $250,000 and couples with incomes over $300,000 lose the lesser of 3% itemized deductions above this threshold or 80% of allowable deductions.

This can all be confusing, so here is an example of the impact the changes in tax rates and itemized deductions will have:

Under the new tax code, a couple with an adjusted gross income of $650,000 and itemized deductions of $75,000 will lose $10,500 in itemized deductions because of the phase-out limitation of itemized deductions while the taxes paid by this couple will increase $30,608 over 2012 rates.

This sounds like it could have an equally negative impact for our ministries since donors now have less incentive to give. But before we jump to that conclusion, let’s keep going with this example to see the potential impact if this couple were to increase their giving.

If this same couple donates an additional $10,000 to your ministry, their taxable income would decrease by $9,700, thus saving taxes paid  at the higher rate of 39.6% or $3,841. This is a $341 increase in tax savings for the additional $10,000 gift compared to 2012, when the top tax rate was 35%.

(To see all the details and calculations behind this example, click here.)

So it turns out the new higher tax rate provides additional incentive to give, since the deductions are more valuable, even with a phase-out limitation. Even more encouraging, there are a couple additional provisions of the new tax code that also have beneficial impact on donors:

Tax-free distributions from IRA for charitable purposes. The provision that allows a donor to distribute funds to a qualified nonprofit from their IRA without paying taxing on the distribution was extended until December 31, 2013. This is good news not only for qualifying taxpayers but for ministry organizations as well.

Capital Gains. The rate increased from 15% to 20% for taxpayers in the top income bracket. This provides additional incentive and tax benefit for taxpayers to donate appreciated property to your ministry.

(Click here to see the tax rate table for federal income taxes as well as long-term capital gains.)

Who would have thought the latest tax code changes could actually benefit large donors? What is your take on how these changes might effect giving to your ministry?

As you’d expect, since I’m talking about taxes here, I must offer the following caveat: This post is provided by ECCU for educational purposes only. It is not intended to be legal, tax, or accounting advice. ECCU disclaims any liability arising out of your use of, or any financial position taken in reliance on information provided in this post.

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  1. This is extremely thought provoking. Your perspective on the issue is much appreciated, and the example clearly confirms the potential benefit for ministries.

  2. Barbara Rood @ 2013-01-19 01:34

    Not many churches would be impacted by donors at this income level. Why is there so much focus on so few people–people who can afford to both give and support the public good through taxes?

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