Taxation of Religious - Special Issues with 2013 Update

This year's budget negotiations and talk of the fiscal cliff left the details of changes in the tax law up in the air until early 2013, with many issues still to be decided in coming months. In this newsletter, I hope to address some of the principal changes that you can expect, with more explanation available in February's webcast. Taxation of the income of religious depends on source, amount and type of income.

Members of a religious order are not tax exempt in themselves. However, there are some special tax situations to consider: 1. Working for the Order, 2. Catholic Employers, 3. Non-Catholic Employers, 4. Self-Employment, 5. Patrimony Income and 6. Effect of income on Government Benefit Programs.

On January 1, 2013, both the Senate and House of Representatives passed H.R.8, the "American Taxpayer Relief Act" and President Obama has now signed it into law. The law makes few changes to the tax obligations of members of religious institutes with taxable income for Tax year 2012. However, note the following extensions:

--the American Opportunity Tax Credit for eduction expenses, and above the line deduction for qualified tuition and related expenses
--the option to deduct state and local general sales taxes
--tax-free distributions from individual retirement plans for charitable purposes

The law also makes changes that will take effect in tax year 2013. If you have high income filers, you may wish to take note of these changes:

--For single filers with over $400,000 (adjusted annually), there is a new 39.5% tax rate and their top capital gains rate will rise from 15-20%.
--For single filers with over $250,000 (adjusted annually), the itemized deduction is limited and the personal exemption begins to phase out.
--There is also a new AMT threshold: $50,600 (adjusted annually).
--There were extensions and changes to deductions and credits that may effect religious: education expenses, tuition expenses, contributions of IRA, EIC.
--Estate Taxes (dying after 2012) exemption level permanently set at $5,000,000 (adjusted annually) and the top tax rate increases from 35% to 40%.

Note also, that the Payroll tax cut was NOT extended to 2013.

For more on these issues and an update on taxes and special issues for Religious with taxable income, register for February's webcast

There is still time to register for: the Covenant Project - comprehensive service for aging institutes. Phase One Workshops in 2013.

I am always happy to work with you or your community, or to present materials on various topics as you face the challenges of an uncertain and changing future.

Amy Hereford

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