By ALAN S. NOVICK
Scripps Howard News Service
14-NOV-05
Now is the time for year-end donations and gifts
Congress and the Internal Revenue Service have provided significant tax advantages to victims of the recent hurricanes and also to any taxpayer who wishes to make any qualified contribution to any charity before December 31st of this year.
Under the hurricane relief act, any person can make and deduct qualified contributions to a qualified charity, recognized as such by the IRS. In the case of a corporation, the deduction is limited to the amount by which the corporation's taxable income exceeds its deduction for other contributions.
The usual rule for charitable contributions is that an individual can deduct only a percentage of the taxpayers "contribution base." The contribution base is equal to the person's adjusted gross income without deduction for any operating loss carrybacks. This limitation, which is 50 percent of the contribution base, is suspended for gifts between August 28, 2005 and December 31, 2005.
In order to qualify for the full 100 percent contribution, several conditions must be met. The gifts must be in cash. Gifts of securities do not qualify. The gifts must be to an organization that is qualified under Section 179 (b)(1)(A) of the Internal Revenue Code. Contributions by a corporation must be for relief efforts relating to hurricane Katrina. Individual gifts can be to any qualified organization.
Anyone who desires to make and deduct a cash contribution under the relief act should be sure to check with his or her tax advisor to be sure that all conditions of the act will be met.
In addition to charitable deduction gifts, individuals should also consider those gifts which will reduce their taxable estates. In any one year, a person can make gifts of $11,000 to as many separate individuals as he or she wishes without filing a gift tax return or becoming subject to gift taxes. The amount of $11,000 is the annual gift exclusion allowed by the Internal Revenue Code. If a spouse joins in the gift, the exclusion amount goes up to $22,000.00 per individual.
For wealthy parents and grandparents, the annual gift tax exclusion provides a way to reduce their estates and also see their children and grandchildren enjoy the gifts without any concern for the need to file gift tax returns or pay any gift or estate taxes on the amounts given away.
For everyone involved, it is comforting to know that no income taxes or gift taxes need to be considered when making gifts that fall within the annual exclusion amount.
(Attorney Alan S. Novick is a wills, trusts and estates lawyer. E-mail estate planning questions to an304(@)aol.com.)
