By: Laurie Valentine-Trust Counsel & Chief Operating Officer
The Tax Relief, Unemployment Insurance Reauthorization and Job Creation Act of 2010, signed into law on December 17, 2010, extended many prior year tax provisions and made significant, although temporary, changes in the estate and gift tax laws. All are designed to keep more money in our pockets and could provide opportunities for additional charitable giving in 2011 and 2012.
Extensions in the income tax area include extension of the current income tax brackets and the current capital gains tax and dividend rates through 2012. Those extensions, coupled with the “payroll/self-employment tax holiday” that reduces Social Security wage and self-employment taxes by 2 percentage points in 2011 leaving more dollars in paychecks, may allow you to increase your tithe or recurring gifts to causes important to you.
The IRA Charitable Rollover provision, first enacted in 2006, which permits tax-free distributions directly to charity of up to a total of $100,000 each year from an IRA, was extended through 2011. It is available for persons age 70 ½ or older. The tax-free charitable IRA distributions can be counted as your required minimum distribution. While these charitable IRA distributions are not deductible, the benefit of not having to include the distribution in your income allows you to reduce your taxable income and provide needed financial support to causes that are important to you.
The increase in the federal estate tax exemption to $5 million and the lowering of the estate tax rate to 35% takes us out of the unknown and into the known, at least for 2011 and 2012. Those changes, and the “re-unification” of the federal gift tax and estate tax exemptions, allows those who have been sitting on the sidelines waiting to learn what would happen when the 2001 tax changes expired to start the process of creating or revisiting their estate plan. Planning your estate, and keeping it up-to-date, will be the single most important act of financial stewardship we as Christians can undertake.
Contact your estate and financial advisers to discuss how the new tax act’s tax savings can allow you to practice your financial stewardship at a deeper level in 2011 and 2012.
The information in this article is provided as general information and is not intended as legal or tax advice. For advice and assistance in specific cases, you should seek the advice of an attorney or other professional adviser.