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New in 2006
Your work representing a non-profit requires you to understand the factors that go into estate, and retirement, planning so that you will construct realistic plans for your donors and maintain your side of conversations with their advisors. A few things are new this year. “A taxpayer must elect to have the contributions treated as qualified contributions.” This quote from the Technical Explanation of the Katrina Emergency Tax Relief Act will mean a lot to your donors who made a KETRA qualified gift in 2005. They must affirmatively elect to treat the gift as a qualified contribution to get the increased deductibility and avoid the overall deductibility limitation KETRA provides. They do so on line 15b of Schedule A. Here is my article explaining KETRA’s provisions. Also new this year, the gift tax annual exclusion has increased from $11,000 to $12,000. Many people use this to reduce the size of their estate during life so their estate’s tax burden will be reduced or eliminated because their estate will be smaller by the time they die. This annual exclusion allows someone (the donor) to make gifts that avoid gift tax liability. (Incidentally, those receiving a gift never pay gift tax; it is always paid, when due, by the donor.) A single donor can make as many gift tax-free gifts to others as they like, as long as none of the gifts add up to more than $12,000 to a single recipient. Spouses can combine their exemptions to give $24,000 to a single recipient this year. Gift tax liability will be incurred by the donor on the amount of total giving to a recipient that exceeds the annual exclusion amount. Gift tax rates are capped at 46% this year.While a donor may incur a gift tax liability they may not have to pay any gift tax. They can use their lifetime gift tax exemption of $1,000,000 if enough of it remains to cover their gift tax liability. Unlike the estate tax exemption, discussed below, the lifetime gift tax exemption is not scheduled to increase. It has been the same since the Economic Growth and Tax Relief Reconciliation Act of 2001 (EGTRRA) and is planned to remain the same through 2010 unless Congress changes things before then, which is quite likely. The size of estates not subject to estate tax has also increased this year. Estates up to $2,000,000 are exempt from estate taxation, up from $1,500,000 last year. We will stay at the current level until 2009 when the exempt amount jumps to $3,500,000. The EGTRRA repeals the estate tax in 2010. Again, Congress will probably make a change before then. In all likelihood you use these numbers to construct realistic estimates of the federal tax impact of your gift proposals. Next month I will say a few words about the importance of state taxes on your projections. Finally, while not strictly part of your gift proposals, this may help you deliver them to your donors. The standard mileage deduction for unreimbursed business use of your car has increased for 2006. The rate is 44.5 cents per mile. Happy New Year!
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