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Tax Foundation Highlights 2010

5/14/2010
May 14, 2010

 

Tax Foundation  Highlights 2010 Charitable Gift Benefits


The Tax Foundation, a non-partisan, nonprofit organization that monitors federal fiscal policy, published a news release that suggested high-income taxpayers should make major charitable gifts in 2010.

According to the Tax Foundation, 2010 is an excellent year for large gifts because the PEP and Pease provisions are not applicable for this year. However, they are likely to be restored in 2011.

The PEP limit refers to the personal exemption phase-out for higher-income individuals. The Pease provision is named after former Congressman Donald Pease (D-OH). It creates a 3% floor on itemized deductions for high-income taxpayers. A high-income taxpayer could lose up to 80% of his or her itemized deductions due to that floor.

Neither the PEP nor the Pease limits apply to 2010. Therefore, it is a very good year to make large charitable gifts because the deductions will qualify in full.

However, under the proposed budgets by President Obama, the Pease itemized floor will apply in 2011 for married couples with income over $254,550 and single persons with incomes over $203,650.

The effect in 2011 is that the proposed 36% tax bracket (increased from 33% in 2010) will actually be raised effectively to 39.2% due to the PEP and Pease limits. In addition, the 39.6% proposed bracket in 2011 (raised from the 2010 35% bracket) will effectively be approximately 43% due to the PEP and Pease limits.

Because the PEP and Pease limits do not apply in 2010, the Tax Foundation recommends large charitable gifts be made this year.
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