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News and Information Archive

 

DATE: June, 2001

DAILY HEADLINE NEWS FEED | ARCHIVES OF PAST MONTHS

Charitable giving grows 6.6 percent to $203.45 billion.

Fueled by gifts and pledges of $50 million or more, contributions to charity in the U.S. exceeded $200 billion for the first time in 2000 and nearly kept pace with the growth of the national economy, a new report says. Giving grew 6.6 percent to $203.45 billion from $190.79 billion in 1999, says Giving USA 2001, an annual report by the AAFRC Trust for Philanthropy (www.aafrc.org).

The increase, slightly behind the 7.1 percent growth in the gross domestic product, came despite uncertainty at the end of the year about the economy and the outcome of the presidential election - and despite turmoil in the stock market throughout the year, AAFRC said.

From nonprofitxpress (http://www.npxpress.com)

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Tax Court Sinks Boat Gift Deduction
Terry O'Neal Styron v. Commissioner, T.C. Summary Opinion 2001-64; No. 13311-99S (2 May 2001)
In a case that was upheld on appeal, the IRS has demonstrated that it will not allow deductions calculated to recoup investments by inflating the value of the donation. The Donor sold a boat, for which he provided no credible appraisal, to a legitimate charity for a bargain sale price of $25,000. The Donor then valued the boat at $80,000, which would allow him to recoup his investment when considering the cash received and the value of the tax deduction.

However, the IRS determined using reputable appraisals that the value was really approximately $48,000 on the date of the gift. In fact, the charity sold the boat for less than even the IRS appraisal a month after the gift.

This donor calculated the value of the charitable deduction he needed to justify a bargain sale. He then discovered an appraiser who was compliant in stating the valuation was correct. In contesting and winning the appeal, the IRS showed it will not allow such back-end valuations, particularly when the valuations are so easily proven erroneous.

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Mr. Rogers on Children and Philanthropy

Fred Rogers, known to millions of young children and parents who have visited "Mister Rogers' Neighborhood" on Public Television over the past three decades, has taken on a new subject. Rogers, a Presbyterian minister who has reached out through television and other media to help children -- and parents -- deal with sensitive subjects like prejudice, death, divorce and disability, has written a book called "The Giving Box" to teach children about giving. Published by Running Press, the book comes with a small metal box with a slot for coins. "The Giving Box" is designed to give parents and children an opportunity to talk about and develop a tradition of giving.

Mr. Rogers indicated that while children tend to be egocentric, some children are more naturally giving. And there are times when some children seem to need to "hold on." That's one of the things he wanted to offer in the first chapter of the book -- to give parents insights into the different ways young children may think of "giving and receiving" -- and how that develops as they grow.

As far as "teaching" those values to children, there's an old Quaker saying, "Attitudes are caught, not taught." When children see that adults are gracious receivers of what they give to us -- their drawings or little gifts or kind words or even their "successes" at toileting -- then they're more likely to want to be people who continue to give ... and who are gracious receivers themselves.

From Changingourworld.com

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Tax Bill Highlights

by: Ted R. Ridlehuber
Cannon Financial Services

Here are some highlights of the historic tax bill past by Congress this weekend. When the President signs the Bill into law, there will be major changes in the income tax, estate tax, and retirement planning laws, and we will all need to re-evaluate what we should be doing for our clients and customers. There will be a number of new tax planning options and you can be assured that Cannon will be continue to provide you numerous ways to continue your professional education and to stay informed.

REBATE CHECKS
-This summer, the Treasury Department will begin to mail taxpayers rebate checks if they have already filed their 2000 tax return. The checks will be up to $300 for an individual, up to $500 for a single parent and up to $600 for a married couple. Actual amounts will be based on the 2000 tax liability. The rebate is due to the new 10% tax rate, and it was a last minute addition to the Bill. The President wanted to get money quickly into the hands of the taxpayers in order to stimulate the economy. The rebate will be in lieu of getting the benefit of the 10% rate on the 2001 return.

TAX RATES
-The rate cuts are effective July 1, 2001, and people should start seeing extra money in their paychecks almost immediately.
-The new 10 percent tax rate applies to first $6,000 of taxable income for single people, $10,000 for heads of households, and $12,000 for married couples filing jointly. In 2008, the 10% bracket will increase to $7,000 for single people and $14,000 for married people.
-The current 15 percent rate remains the same.
-The top 39.6 percent rate drops to 35 percent by 2006. Other rates drop gradually by 2006 from 36 percent to 33 percent; 31 percent to 28 percent; 28 percent to 25 percent.
-Income limits on itemized deductions will be adjusted upward beginning in 2006.
-Beginning in 2006, the personal exemption phase-out for higher income taxpayer will be repealed gradually and will be eliminated by 2010.
-According to Deloitte & Touche, a married couple with two children and $150,000 in taxable income who claim average itemized deductions would have paid $24,619 in federal income tax this year. As a result of lower rates and marriage penalty relief, in 2010 the couple will owe $21,866, a difference of $2,753 or just over 11 percent. (The children matter only for personal exemptions because at such a high income level the child tax credit is not available.) At $400,000 of taxable income, the same family will pay $90,888 in 2010 -- $13,989 or 13.3 percent less than this year. And with taxable income of $1 million, the tax liability in 2010 will be $259,281 -- $47,557 less than under the previous tax law, a 15.5 percent decline.

CHILD CREDIT
-The child tax credit rises from $500 to $600 effective in 2001. It then rises to $700 in 2005, $800 in 2009 and $1,000 in 2010. The credit currently begins to phase out for parents with AGIs above $110,000 on a joint return and $75,000 for single parents. This will stay the same under the new Bill.

MARRIAGE PENALTY
-The standard deduction for married couples is gradually raised beginning in 2005 so that it is equal to twice that of single taxpayers. If it was in effect this year, the deduction would be $9,100 this year instead of $7,600 for a married couple.
-The 15 percent tax bracket is gradually enlarged beginning in 2005 so it applies to more of a married couple's income, equal to twice that of singles. If fully in effect this year, the lowest tax rate would apply to $54,100 of a couple's income instead of $45,200.
-The income limit for the earned income tax credit is expanded by $3,000, and fully phased in by 2008.

ESTATE TAX
-The estate tax is repealed in 2010. However, this is a bit misleading. The new Bill repeals the law for only one year. Due to budgetary restrictions, the new Bill allows the current estate tax rules and rates to come back into existence in 2011. This means that Congress must face the issue again in 2011, and under different political circumstances who knows what will happen.
-The top rate of 55 percent is immediately dropped to 50 percent in 2002, and eventually to 45 percent by 2009.
-The current $675,000 individual exemption is raised to $1 million in 2002, $1.5 million in 2004, $2 million in 2006, and $3.5 million in 2009.
-The matter will be more complicated in 2010 since there will be a modified carryover basis rule to deal with. Death will become an income tax problem rather than an estate tax one. The basis of assets from a decedent will not be steped up as they are now, except for 2 exceptions. With proper planning, $1.3 Million of basis will be stepped up for non-spouses and $3 million of basis will be stepped up for a spouse. Also, some assets will not be eligible for the step up. This will create a nightmare for those who must keep up with the records of basis in the asset.
-The gift tax is not repealed, but has been modified to prevent people from using gifts to transfer assets from higher tax bracket owners to lower bracket owners. The new Bill creates a $1 million lifetime gift tax exclusion beginning in 2002 and the gift tax rate will gradually decline. In 2010, gifts in excess of $1 Million will be subject to a tax equal to the top income tax rate at that time, which would be 35% unless changed.

RETIREMENT
-The tax-favored contribution limits for individual retirement accounts (IRA's) and Roth IRAs is gradually raised from $2,000 to $5,000. There is no change in income limits. Year IRA Contribution Limit 2001 $2,000 2002-2004 $3,000 2005-2007 $4,000 2008 and after* $5.000 *Indexed for inflation after 2008
-In an attempt to allow older workers to catch up on retirement contributions, older workers will be able to contribute a bit more to their IRAs. Those aged 50 and older before the end of the taxable year will be able to contribute $500 more than the regular limits starting in 2002. The amount increases to $1,000 in 2006.
-In 2006, employees participating in a 401(k) or 403(b) plan will have the option of having some or all of their contributions subject to the same tax treatment accorded to Roth IRAs.
-The tax-deferred contribution limits for 401(k), 403(b) and 457 plans (used by Govt. employees, will all increase. The 401(k) and 403(b) contribution limits will increase from $10,500 now to $11,000 in 2002, $12,000 in 2003, $13,000 in 2004, $14,000 in 2005 and $15,000 in 2006. After 2006, it will be $15,000 and will be indexed for inflation.

EDUCATION
-The limitation on deductibility of student loan interest is removed.
-The contribution limit for tax-favored education savings accounts is raised from $500 to $2,000 in 2002.
-Prepaid tuition plans are attractive under the new Bill. State sponsored prepaid tuition plans will be completely tax free beginning in 2002. Currently, tax is owed on the increased value of the plan once the child enters college. Also, private colleges and universities will be able to take advantage of the tax free prepaid tuition plans beginning in 2004.
-The new Bill provides additional employer-provided educational incentives. The tax exemption for employer-provided education assistance is now permanent and it will be expanded in 2002 to include graduate studies.

From Cannon Financial Services

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