Q&A with David Greenwell
Any tax changes may affect gifts
Q: Congress and the president are proposing a variety of possible changes in the income tax and estate tax rules for 2013. Several of the various proposals being discussed will impact a person's decision to make charitable gifts as well as gifts to family members. What are some possible income tax changes related to making charitable contributions?
A: Besides the potential for an increase in the tax rates for individuals, proposals have been discussed that would place a cap on the deduction of charitable contributions or allow them to be phased as a person's taxable income increased. In an effort to raise federal income tax revenue without an increase in the tax rates, one of the proposals places a cap on the overall limit of all itemized deductions (including charitable contributions) at $50,000. At this time, such as dramatic change in the income tax laws seem unlikely, however, there does appear to be support for a phase out of benefits as income increases.
In 2010, 83 percent of those individuals claiming itemized deductions claimed a charitable contribution. In that year, the total amount of charitable contributions claimed was $170 billion.
Q: Are there planning opportunities for charitable contributions for the remainder of this year?
A: Yes, one the best ways to make a charitable contribution is to contribute assets that have increased in value. Marketable securities can be contributed to a charity and the donor will obtain a charitable contribution equal to the fair market value of the stock on the day of the transfer, and the taxpayer will not have to report the unrealized gain within the securities as taxable income. For example, if an individual purchased 100 shares of stock three years ago for $1,000, and it now is valued at $5,000, then the individual would receive a charitable deduction of $5,000 and not recognize the unrealized gain of $4,000 as taxable income.
Q: What is being considered in the area of estate and gift tax?
A: A lot! Both the tax rates, as well as the lifetime exemption amount for estates and gifts are under consideration. Currently, estates have a maximum tax rate of 35 percent. However, if no changes are made, these rates go up to 55 percent beginning in 2013. Also, the current lifetime exemption from estate and gift taxation is $5.12 million. Without new legislation, the exemption for both gift and estate tax purposes will drop to $1 million in 2013. In addition, several of the methods to transfer assets to subsequent generations at reduced values are being attacked, such as the use of defective granter trusts, and discounts associated with the use of family limited partnerships.
Many taxpayers are working with their attorneys and accountants to determine the most effective ways to transfer assets to take advantage of the possible increase in estate and gift taxes before the end of the year. The current annual exclusion of $13,000 is scheduled to increase to $14,000 beginning in 2013.
PAULA BURKES, BUSINESS WRITER