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Limits on itemized deductions in 2013

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in Small Business Tax,Small Business Tax Deduction Strategies

Q. We’re thinking of giving large donations to several charities. Are deductions for itemized deductions reduced this year? K.P., Scottsdale, Ariz.

A. No. But the prior rule reducing certain itemized deductions for high-income taxpayers—including deductions for charitable donations, mortgage interest, property taxes and state and local income taxes­­—will be reinstated in 2013 unless Congress changes the deal.

This so-called Pease amendment (named after the Congressman who introduced it) cuts certain itemized deductions, including those for charitable donations, by 3% of adjusted gross income (AGI) above a specified income threshold, but not by more than 80%. The income threshold is projected to be $174,450 in 2013 and will be adjusted for inflation in subsequent years.

Tip: This pending change provides a tax incentive to make charitable gifts in 2012 that you might otherwise have made in 2013 and beyond.

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