Is blatantly wrong advice impacting your generosity?
I am seeing a consistent theme of blatantly wrong advice coming in the form of commentary on the most recent tax legislation. There is a lot of commentary centering on the Pease Provision which is purported to be a limitation or phase out of itemized deductions. In reality this is simply a disguised tax increase of roughly 1% (3% phase out multiplied by a 39.6% tax rate equals 1%). A recent article I read stated “the Pease Provision phases out the income tax deduction for a charitable gift by the lesser of (i) 3% of the excess of AGI over the threshold level or (ii) 80% of the otherwise allowable deductions.” This is very misleading by indicating the adjustment is somehow connected to the charitable donation. The limitation is a factor of one’s Adjusted Gross Income, not a factor of one’s itemized deductions. It does contain an 80% of overall itemized deductions test, but when the taxpayer has other itemized deductions such as mortgage interest, property taxes, and state income taxes, the 80% test is not limiting in most cases. Taxpayers should look at this as an addition to taxable income since it is a factor of income. If you receive a $100,000 bonus, your taxable income will increase by $103,000. If conversely you give an additional $100,000 to charity, you will see a reduction in taxable income of $100,000. In my volunteer work I am part of a generosity movement. My fear is misinformation like this may serve to reduce charitable giving.