Taxation

The Expected return and Investment in contract are used to calculate the portion of each annuity payment that will be excluded from income as a tax-free return of principal. This exclusion ratio is calculated by dividing the Investment in contract (the fair market value of the gift less the charitable deduction) by the Expected return (the total amount in annuity payments expected to be returned to the beneficiaries).(1) The exclusion ratio is rounded at three decimal places (one-tenth of one percent).

The standard deduction is the federal income tax deduction available to taxpayers who do not itemize their deductions.

Taxpayers who take the standard deduction instead of itemizing their deductions enjoy no income tax benefit from making charitable donations.

Sponge tax is the term used to describe a state death tax that maximizes the state's share of an estate's transfer taxes without increasing the estate's total transfer tax burden.

Short term capital gain is capital gain realized on the sale of property that the seller has held for 12 months or less. Realized short term capital gain is subject to ordinary income tax.

Section 501(C)(3) is a section of the IRS Code that defines the requirements for being a non-profit institution.

Section 170(C) is a section of the IRS Code that defines the charitable contribution.

Schedule SE is the portion of the federal income tax return where the taxpayer computes self-employment tax. The taxpayer attaches Schedule SE to his or her Form 1040 when filing the return.

Schedule R is the portion of the federal income tax return where the taxpayer computes the tax credit for the elderly or disabled. The taxpayer attaches Schedule R to his or her Form 1040 when filing the return.

Schedule E is the portion of the federal income tax return where the taxpayer reports all supplemental income and loss from rental real estate, royalties, partnerships, S corporations, estates, trusts, etc. The taxpayer attaches Schedule E to his or her Form 1040 when filing the return.

Schedule D is the portion of the federal income tax return where the taxpayer itemizes all realized capital gains and losses. The taxpayer attaches Schedule D to his or her Form 1040 when filing the return.