News & Commentary

IMPORTANT TAX INFORMATION
NOVEMBER 2005

Charitable Contributions
The recently signed Katrina Emergency Tax Relief Act contains a number of important provisions that are designed to encourage charitable contributions for Hurricane Katrina relief efforts. Some of the provisions of the Act have broad application and offer a short-term planning window for anyone who intends to make a significant charitable contribution by the end of 2005.

Charitable contributions by individuals are subject to the so-called “percentage limitations,” which limit the amount of your charitable deduction to a percentage of your overall income. Contributions of cash are usually limited to 50% of your adjusted gross income, while contributions of property are limited to 30%. Individuals making a large gift often bump up against these limitations, especially when subject to the 30% limitation for gifts of property. To the extent that a charitable gift exceeds either of these limitations, you may carry forward the excess deduction for up to five taxable years. The excess can be deducted in each of those years, subject to a recalculated 50% or 30% limitation. Any contribution that cannot be deducted during the five-year carry forward period is permanently lost for deduction purposes.

In addition to the percentage limitations, a portion of your itemized deductions is disallowed when your adjusted gross income exceeds $145,950 (in 2005). This disallowance includes any charitable contribution deductions.

 Goods News on Annual Gifting
The Internal Revenue Service has just announced that starting January 2006, the gift tax free annual transfer amount has increased to $12,000 from $11,000.

Gift Tax
The gift tax applies to the transfer by gift of any property. You make a gift if you give property (including money), or the use of or income from property, without expecting to receive something of at least equal value in return. If you sell something at less than its full value or if you make an interest-free or reduced interest loan, you may be making a gift.

The general rule is that any gift is a taxable gift. However, there are many exceptions to this rule. Generally, the following gifts are not taxable gifts.

• Gifts that are not more than the annual exclusion for the calendar year.

• Tuition or medical expenses you pay for someone (the educational and medical exclusions).

• Gifts to your spouse.

• Gifts to a political organization for its use.

• Gifts to qualified charities (a deduction is available for these amounts).

 Annual Exclusion
A separate annual exclusion applies to each person to whom you make a gift. For 2002, 2003, 2004 and 2005, the annual exclusion is $11,000. Therefore, you generally can give up to $11,000 each to any number of people in 2002, 2003, 2004 and 2005 and none of the gifts will be taxable. In 2006 the annual exclusion is $12,000.

 Gifts to individuals are not deductible on the donor's income tax return.

Remember, gifting to family members is as much an art as it is a science. We are glad to discuss your particular situation and offer ideas and alternatives that may be helpful. There is absolutely no cost or obligation to meet with one of our trust officers.

Investors' Security Trust Company; November 2005


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