Taxation

The alternative minimum tax (AMT) is an income tax that is designed to assure that taxpayers with large deductions pay at least a minimum amount of income tax.

Adjusted gross income, or AGI, is the total reportable income received by a taxpayer during the tax year after “above the line” adjustments, such as IRA contributions, have been made, but before any itemized deductions have been taken.  Certain charitable deduction limitations are computed based on a taxpayer's AGI.

You are working with a donor who decides that they really don’t need income themselves, but they would like to make a gift that provides income for someone else. The income beneficiary may be a child, parent, friend or employee, and the gift may be a remainder trust, gift annuity or pooled fund. Alarm bells should go off, as there are some tax issues that may come as a surprise.

The Potential Taxes

In December 2010, Congress passed the Tax Relief, Unemployment Reauthorization, and Job Creation Act of 2010. Among its numerous provisions, the 2010 Act extended the income tax rate reductions enacted during the Bush administration through December 31, 2012. This means that income and capital gains tax savings from lifetime charitable gifts of cash or other assets will remain unchanged at least until the year following the next presidential election.

In the event that Congress does not act in the meantime, on January 1, 2013 tax rates will revert to those in effect when President Clinton left office; the top income tax rate would be 39.6 percent, capital gains would be taxed at a 20 percent rate, and dividends would be taxed at ordinary income tax rates, potentially as high as 39.6 percent. These changes would increase the tax incentives for charitable giving.