Tax act offers advantages for end-of-year giving in 2005

— In August 2005, the Katrina Emergency Tax Act went into force, providing special opportunities for those wishing to make donations to not-for-profit organizations and churches before the end of 2005.

According to the Very Rev. John Dresko, OCA director of development, the Tax Act offers individuals a one-time charitable giving opportunity to make larger than usual gifts. Funds for charitable giving may also be withdrawn from IRA accounts without penalty.

Through the end of 2005, the maximum charitable donation, including IRAs, has been increased from 50% of Adjusted Gross Income (AGI) to 100% of AGI. Donations must be outright gifts of cash made by December 31, 2005. Individual contributions may be directed to the Orthodox Church in America.

As always, donors may have a special affinity for one of the programs or projects of the Orthodox Church in America. An unrestricted donation may be made, allowing the Church to direct the funds to the greatest need. A restricted donation may also be made, with the donor giving a gift towards a specific area of Church ministry or to one of the Church’s endowments providing for future needs.

Donors should consult their financial or tax advisors about both the optimal amount to contribute in 2005 and the advisability of making contributions from IRAs or other qualified plans.

Below please find the text of a pamphlet titled “Giving in 2005: New Tax Law Offers Special Window of Opportunity,” which offers a comprehensive explanation of the Act’s provisions.

Additional assistance is available from the Orthodox Church in America by contacting the office of development at 516.922-0550 or via email at .(JavaScript must be enabled to view this email address).

GIVING IN 2005: NEW TAX LAW OFFERS SPECIAL WINDOW OF OPPORTUNITY

New tax law brings new opportunities. Events in 2005 have called for an unprecedented response from individuals, non-profit organizations, and government to aid victims of natural disasters. Americans have responded with record levels of charitable giving to assist those in need.

Now Congress has acted to encourage additional charitable giving during this critical time by changing income tax laws to help Americans fund relief efforts while continuing to support their traditional charitable interests.

The Katrina Emergency Tax Relief Act of 2005 includes a number of important charitable giving provisions. Of particular note, the Act includes special new incentives for those who make charitable gifts of cash before the end of 2005.

EXPANDED TAX INCENTIVES. Our nation’s tax system has long encouraged charitable giving. Gifts to churches, for example, may be deducted from income that would otherwise be subject to tax.

Likewise, charitable deductions are allowed under gift and estate tax laws. However, unlike the unlimited federal gift and estate tax deduction, the amount one can deduct for income tax purposes in a given year may be limited.

Contributions of cash are generally deductible in amounts up to 50% of what is known as the donor’s “contribution base.” For most individuals, the contribution base is the same as their adjusted gross income [AGI].

For gifts of securities and certain other properties that have increased in value, the limit is normally 30% of AGI. Any gifts of cash or other property in excess of these limits may be carried over for use as a deduction in up to five additional years.

A WINDOW OF OPPORTUNITY. Because many individuals may wish to make additional gifts this year that could cause them to encounter charitable deduction limitations, Congress has temporarily suspended limits on deductions for gifts of cash to qualified charities made during the period beginning on August 28, 2005 and ending on December 31, 2005. Thus, donors may deduct qualified charitable gifts in amounts up to 100% of their AGI, if so desired.

Other limits that can reduce the value of itemized deductions by 3% for some higher income taxpayers have also been suspended for qualified contributions made before the end of 2005.

Example: Ellen and George have given generously in support of disaster relief this year. They were planning to make additional gifts to other charitable interests but were told by their tax advisor that they have given all they could deduct from their 2005 income taxes and should wait until 2006 to make these gifts. They are pleased, however, to learn that under the terms of the new tax law they can make the gifts they wish and enjoy full deductibility in 2005.

OTHER SOURCES OF GIFTS. You may choose to make charitable gifts from any number of sources. For example, if you have accumulated funds in an Individual Retirement Account [IRA], 401[k], 403 plan, or other similar retirement account, this year may present special opportunities.

Assets held in tax-favored retirement accounts are subject to income tax when withdrawn during your lifetime or by survivors. They may also be subject to estate tax if left to loved ones other than a spouse. For that reason, retirement accounts may be a good choice for some when deciding how to fund charitable gifts.

If you are over the age of 59 1/2, funds can be withdrawn from IRAs and other retirement accounts and donated to charity without payment of a 10% penalty for early withdrawal. Amounts withdrawn and donated in this manner are reported as part of your income and are then deductible as charitable contributions.

For some taxpayers, however, the limits on deductible amounts, coupled with other reductions in itemized deductions, can result in a portion of retirement funds being taxed even though donated for charitable purposes.

Under the new tax law, donors can make a gift to a qualified charity of any amount withdrawn from an IRA or similar retirement plan before the end of the year and deduct the entire amount in 2005.

Remember that such gifts must be completed on or before December 31 of this year to take advantage of the suspension of rules that could otherwise limit the attractiveness of these gifts.

Example: Henry, age 62, has accumulated assets that he believes are more than sufficient to fund his retirement. He has provided for his loved ones in other ways and has often thought he would like to make a significant charitable gift to his church using a portion of his IRA. He is pleased to learn from his tax advisor that the new tax law makes it possible for him to withdraw and donate the amount he wishes to give with minimal tax consequences, as long as he completes his gift between now and the end of 2005.

GIFTS OF OTHER ASSETS. The new tax law makes no change in the tax treatment of gifts of stocks, bonds, mutual funds, and certain other property that has increased in value while you have owned it.

As in the past, you can contribute appropriate property and enjoy a tax deduction equal to the current market value of the donated asset, regardless of its original cost basis. In this way, you are able to benefit from your income tax deduction while the gift does not give rise to capital gains tax that could be due on a sale of the property. Such gifts remain deductible in amounts up to 30% of your AGI.

As an alternative, you may wish to sell securities and report gains or losses, as applicable, and use the cash proceeds to make charitable gifts that take advantage of the provisions of the new law.

ACT NOW FOR GREATEST BENEFIT. Time spent reviewing your tax and financial affairs now may bring unexpected benefits for you and your charitable interests.

Check with your advisors about the best ways to take advantage of special giving opportunities. Keep in mind that everyone’s circumstances are different and state as well as federal tax laws may affect your plans.

[NOTE: The purpose of this publication is to provide general gift, estate, and financial planning information. It is not intended as legal accounting, or other professional advice. For assistance in planning charitable gifts with tax and other financial implications, the services of appropriate advisors should be obtained. Consult an attorney for advice if your plans require revision of a will or other legal document. Tax deductions vary based on applicable federal discount rates, which can change on a monthly basis. Some opportunities may not be available in all states.]