Will lowering of U.S. estate tax discourage charitable bequests?

From the February 2011 issue of The Art Newspaper

President Oba­ma and the U.S. Congress's unexpected lowering of estate tax in December to 35%, with a $5 million per person exclusion, in place for two years, has dismayed some who are concerned that lower rates may prompt less charitable giving, because the estate tax deduction for charitable gifts, seen as a powerful philanthropic incentive, will have less dollar value to donors.  Chuck Marr, director of Federal Tax Policy at the Center on Budget and Policy Priorities, a liberal Washington, DC think tank, [says]:. "The value of the charitable deduction has been decreased." But others say the rich will keep on giving.  Ralph Lerner, a New York art lawyer who counsels many clients whose net worth exceeds the new $5 million exemption, [said] he doubts the tax law change will have much impact and people who own more than the exemption amount "will still want to take advantage of the income tax benefits of the charitable deduction during their lifetimes."  The new tax law does provide tax incentives for charitable gifts, including favourable terms in 2011 for making deductible gifts to charity from a retirement account, and a two-year allowance of unlimited itemised deductions for charitable gifts. As a result, "we see the new tax act as encouraging charitable giving," said Brian Walsh, of the private wealth management firm Highmount Capital.


Commentary: The current U.S. tax deduction on charitable giving must go

Posted by Kim Klein on the Nonprofit Quarterly's blog, January 26, 2011

A proposal made in December by President Obama's National Commission on Fiscal Responsibility and Reform would replace the charitable giving tax deduction with a tax credit available to all taxpayers, regardless of whether they itemize deductions on their returns. The [current deduction] is only available to people whose total donations equal more than 2% of their adjusted gross income -- and only about half of all taxpayers give that much.  71% of Americans receive no tax benefit for their giving because they don't exceed the standard deduction and they file a short form.  The government is subsidizing wealthy people's giving while ordinary people (the majority of people) get nothing.  Of course, many charity leaders are squawking that getting rid of the charitable deduction will be another body blow to nonprofits.  In fact, it will be a minor scratch to the people who receive tax benefits for giving.  And one such person who receives tax benefits for giving is me.  I own a house, I have a mortgage deduction (which I also think should be abolished) and my partner and I give away 5 to 10 percent of our income.  Others have suggested that if the government must incentivize people to make gifts, at least make the tax advantages of charitable giving fair.  Changing the deduction to a credit could easily do this, as the Obama administration has recently suggested. 


In California, a new opportunity to help fund the arts via state tax returns

Posted on YubaNet.com, January 22, 2011

Arts lovers should keep "tax day" in 2011 in mind for a great way to help the arts in the Golden State. Californians interested in increasing funding for arts programs throughout the state now have a way to directly contribute to the California Arts Council through their annual tax refunds. The 2010 tax return form will allow California taxpayers to contribute part of their personal income tax refund to the California Arts Council and its arts programs for children and communities.  The Arts Council is included on the 2010 "Voluntary Contribution" portion of the FTB tax return after the passage of SB 1076 in 2009.  "The California Arts Council is thrilled to be part of the volunteer tax check-off program from the Franchise Tax Board," said Muriel Johnson, Director of the California Arts Council. "We are grateful to Senator Curren Price for initiating the enabling legislation that allows Californians to directly contribute to the arts through their state tax refunds."


New IRS form 1099 rules you should know about

Posted by Barbara Weltman on American Express' OPEN Forum, Jan 26, 2011

One method the IRS uses to ensure that income is being reported is to cross check it against information returns filed by third parties reporting the income. As the "tax gap" (the spread between taxes actually collected and what should be collected) has grown, the government has created new reporting rules. Here are three new 1099 rules that could affect you and your business.

         Reporting of Goods and Services: Starting in 2012, businesses of all sizes -- there is no small business exemption -- must start to report their payments for goods and services of $600 or more.  While several attempts in the fall of 2010 to repeal this rule failed, most observers expect the rule to be repealed soon. However, businesses should get ready for this reporting rule in the event that it is not repealed.

         Reporting of Credit Card Transactions: Starting with transactions in 2011, banks and other payment settlement companies processing credit cards, debit cards, and electronic payments (such as PayPal) will have to report annually to the IRS the gross amount of merchant (seller) transactions. Sellers with annual gross sales on their merchant accounts of no more than $20,000 or 200 or fewer transactions are exempt from this reporting.  [But] many online sellers who assumed that their sales were under the radar will not be able to avoid reporting income.


Commentary: The issue of 30% tax withholding for visiting foreign artists

Posted by Joe Patti on his blog Butts In The Seats, January 27, 2011

The issue of the 30% withholding the United States levies against foreign artists doesn't seem to be going away. Last year I wrote about my victory, with some help from the IRS, in educating my disbursement office about reading tax treaties with other countries. I thought between this new-found knowledge and preparing the paperwork well in advance of a performance, most of the problems would be behind us.  Boy was I wrong.  About two weeks ago, I had a letter from the IRS specifically directing us to withhold 30% from the payment we were making to an artist and then send them proof of having done so. You would think from such a letter that the performers were absconding from the country with huge amounts of cash, but we really aren't relatively paying them all that much. Especially when you consider their agent gets a cut too. I don't want to imply that the laws should be applied inconsistently, but it seems like the IRS is either focusing undue attention on small potatoes or they have shifted resources to scrutinize all foreigner artists' activities. This story has a happy ending, at least for my organization. Still, the whole incident shows that the IRS is apparently stepping up their activities in this area and you need to be more aware of the laws surrounding withholdings. Artists from Abroad is a good place to start.

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