Get Ready to Let Go of Some Itemized Deductions

We won’t know for sure until the politicians get things sorted out, but many commentators think one upshot of the pending deal-making will be some form of limitation on itemized deductions.

Obama has repeatedly called for a cap on itemized deductions.  His latest proposal for 2013 would limit the benefit of deductions in the case of certain higher-income taxpayers (who, of course, must pay their “fair share.”), not to mention some above the line deductions (including pretax employee contributions to defined contribution retirement plans and contributions to traditional IRAs) to amounts which would effectively limit the tax benefit from such items to 28%.

Reminiscent of the Clinton days in which the “3%” limitation on itemized deductions crept into the law – a somewhat disguised way of increasing the taxpayer’s effective tax rate.

IRS reports (“Statistics of Income” Bulletin) that in tax year 2010, folks with AGI of $250,000 and up, on the average, sustained about $91,000 of total itemized deductions, including about $20,000 of contributions.  We’re sure the nonprofit organization community will find this an unwelcome development if it does materialize.