President Barack Obama’s recently announced $3.6 trillion budget aims to curb the deduction available to many Americans for making charitable contributions.
Under current guidelines, taxpayers are entitled to “deduct” from his or her taxable income donations made to government-approved charitable organizations. This deduction is applied at the highest marginal rate that she pays. So if she’s in the highest tax bracket and pays the IRS 35 percent of the highest portion of her income, she can effectively write off - and not pay - 35% of her contributions.
President Obama’s proposed budget, however, aims to do two things. First, it will increase the highest marginal rate from 35% to nearly 40% for couples earning more than $250,000 yearly. Second, it will cap the charitable deduction at a 28% rate. So, essentially, the same woman paying taxes at a marginal 35% rate will only be able to deduct 28% of her contribution; the same $5,000 gift would yield a tax savings of only $1,400.
What this means is that families in higher tax brackets will not only see their marginal rates increase but will also see a reduction in the deductibility of their donations.
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