New Beginnings
The proposed changes to the Alternative Minimum Tax (AMT) regime have left many individuals reevaluating their financial strategies, especially as it relates to charitable gift planning. Many critics of the new AMT regime argue that these changes will dissuade donors from donating to charitable organizations and causes, due to the alterations to tax incentives, at a time when charities are struggling to meet the increased demand for charitable services in the wake of harsh economic conditions following the Covid-19 pandemic.
Understanding the Changes: The Alternative Minimum Tax is a parallel tax calculation that occurs concurrent to the regular income tax calculation and was initially designed to ensure that high-income individuals pay a minimum level of tax, preventing excessive use of deductions and credits to eliminate their tax liability. Amongst the various changes to the AMT regime, including an increase to the AMT tax rate and exemption amount, the one of note is a change to how the taxable amount under AMT is calculated (i.e., a broadening of the AMT base) which will include an increase in the capital gain inclusion amount when a donation is made of publicly-listed securities. For example, under the same conditions, a donor with income greater than $173,000 composed of preferentially treated income such as capital gains and dividends and making a significant in-kind donation of appreciated securities to charity may see an AMT liability in 2024 and future years where they would not have in 2023.
While changes to the AMT may have financial implications for some donors, the essence of philanthropy should not be overlooked. Philanthropy plays a pivotal role in addressing societal challenges and fostering positive change. It is important to recognize that the motivation to give is a desire to make a difference in the world. Rather than letting changes to the AMT regime deter donors, donors should adapt their giving strategies to align with the new financial landscape.
Consult with your financial advisor, accountant and gift planning professional to understand how you can optimize your charitable contributions within the revised tax framework.