New Year's Tax Code Brings Challenges and Opportunities
As we ring in a new year, there are many new tax policies that land trusts should be aware of, so we're kicking things off with a comprehensive update.
Twelve Months to Use the Enhanced Easement Incentive
Making the enhanced easement incentive permanent will be our top policy priority for 2011, but with an austere budget climate and a new and very different Congress, it's very difficult to know what the law will be in 2012.
That means this month is a critical window of opportunity for spreading the word to landowners in your land trust's priority areas, so they have time to act before December 31, 2011. Visit our Grassroots Toolkit for over a dozen tools to help spread the word, including an updated brochure you can print and a sample fact sheet you can adapt on your own letterhead.
We need to hear how the incentive is working -- or not working -- for you. If you completed year-end easements thanks to this extension, we'd love to see pictures and may feature them in Saving Land or share them with Congress. Please email firstname.lastname@example.org.
We also need to demonstrate the impact of letting the incentive lapse for 11 months. On Monday, every land trust will receive an invitation to participate in the 2010 National Land Trust Census, which includes a special question about easements completed in 2010. We urge you to provide a prompt and complete response; Census provides critical information for our work with Congress.
Hold On To Your Tax Return -- Filing Delay & Extended Deadline
Taxpayers who itemize deductions on Schedule A (including all easement donors) cannot file their taxes for 2010 before mid to late February -- the IRS announce exactly when later. Their computers aren't ready because of the last minute Congressional action on taxes. The new deadline to file individual tax returns is April 18. Read more.
This delay offers a special reprieve for land trusts that haven't yet sent their donors "contemporaneous written substantiation" letters as required by section 170(f)(8) of the tax code. For a charitable gift of $250 or more to be valid, a donor must receive such a letter prior to filing their return. Read more about this requirement.
Estate and Gift Tax Changes
With the geographic limitations of the 2031(c) exclusion lifted for another two years, the remain as they have been for the past decade. Land trusts may, however, be interested in overall changes to estate tax rates that may change estate planning strategies for the next two years.
For 2011 and 2012, the estate and gift tax exemption is set at $5 million per person (indexed for inflation) with a rate of 35%. The new law also simplifies the spousal transfer of any unused estate tax exemption, so couples can enjoy a $10 million exemption with less complicated estate planning. See a brief summary and more detailed technical analysis of these changes.
S Corporation Donation Incentive Extended
Another element of the year-end tax bill extended the special provision allowing S corporation shareholders to deduct their pro rata share of the fair market value of charitable donations made by the company, even if the deductions exceed the shareholder's adjusted basis. The previous limitation to stock basis had killed many important conservation deals. Thanks to section 752 of H.R. 4853, the provisions of IRC section 1367(a)(2) are now in effect through December 31, 2011. See a discussion of this provision from attorney Stephen Small.
Charitable IRA Rollovers in January Can Count for 2010
As we've been reporting, Section 725 of the year-end tax bill allows donors over 70 1/2 to make donations up to $100,000 from their IRA and Roth IRA accounts, without having to pay taxes on the withdrawals. In addition to extending the provision through 2011, it allows donations through January 31, 2011 to count as if they had been made in 2010. Read more from Independent Sector and the University of Wisconsin Foundation.
Update: Some subscribers received a version of this alert suggesting the January deadline would help donors whose 2010 required minimum distributions pushed them into higher tax brackets. Contrary to Congressional intent and early press reports, today the Wall Street Journal reported that the IRS will not allow donors to put back 2010 distributions they’ve already taken. Of course, making a 2010 contribution could still help reduce required distribution amounts in future years.
Changing 990 Thresholds -- You May Have to File a Different Return this Year
Tax year 2010 marks the last in a series of scheduled adjustments to the filing thresholds for forms 990, 990-EZ and 990-N that are required of all public charities each year. See the IRS chart of filing thresholds, which will link to forms and instructions as they become available.
The good news is that organizations with gross receipts of $50,000 or less (up from $25k last year) may now file the 990-N e-Postcard, with just 8 simple questions.
The bad news is that thresholds for which the full Form 990 is required (vs. the 990-EZ) have fallen to gross receipts exceeding $200,000 or total assets exceeding $500,000. The filing deadline isn't until May 15 (for calendar year filers), but if this will be your first time filing the full 990, we encourage you to take a look at it now. Schedule D includes questions regarding conservation easements that are discussed in our Detailed Guide to Form 990.
Thanks for helping!