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Taxation

Gift Tax Deduction

The gift tax deduction is a deduction that a donor may declare on his or her federal gift tax return (Form 706) that reduces the amount of a taxable gift.

In the context of planned giving, a charitable lead trust earns a gift tax deduction for the donor that is equal to the value of the income stream the trust will pay to the charity during the trust term. For example, if a donor funds a charitable lead trust with $1,000,000 and earns a $600,000 gift tax deduction, the taxable gift will be only $400,000, not the whole $1,000,000.

Unified Gift and Estate Tax Credit

The unified gift and estate tax credit is the lifetime federal credit available to each taxpayer to reduce the tax on taxable transfers that he or she makes during life and at death.

Under the Economic Growth and Tax Relief Reconciliation Act of 2001, the gift tax credit schedule and estate tax credit schedule were not unified in 2004 - 2010. They have been reunified for 2011 – 2012 under the Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010.

Gift Tax

Gift tax is a federal transfer tax that is assessed on an individual who transfers assets to another individual during life. The tax is computed using the Gift and Estate Tax Schedule applicable in the year of transfer and with reference to the donor's annual gift tax exclusion and available gift tax credit.

Generation Skipping Transfer Tax Exemption

The generation skipping transfer tax exemption is a tax exemption allowed each taxpayer for transfers subject to generation skipping transfer tax (GST) up to a certain amount.

As long as the total taxable transfers that a taxpayer makes to skip persons during his or her lifetime are less than the prevailing GST exemption amount, the transfers will not be subject to GST.

General Counsel's Memorandum (GCM)

A General Counsel's Memorandum is a legal memorandum prepared by the IRS office of Chief Counsel. GCMs typically address issues raised by IRS technical staff in considering various types of IRS rulings.

20%/30% Deduction Limitations

The deduction that a donor is allowed to claim in one year for gifts "for the use of" a public charity or to a private foundation is limited by the donor's adjusted gross income (AGI). The deduction is limited to 20% of the donor's AGI for a gift of appreciated property. The deduction is limited to 30% of the donor's AGI for a gift of cash. The donor may carry forward excess deductions of this type for up to an additional five years.

30%/50% Deduction Limitations

The deduction that a donor is allowed to claim in one year for gifts to a public charity is limited by the donor's adjusted gross income (AGI). The deduction is limited to 30% of the donor's AGI for gifts of appreciated property and to 50% of the donor's AGI for gifts of cash. The donor may carry forward excess deductions of this type for up to an additional five years.

Final Treasury Regulations

Final treasury regulations are tax regulations issued by the Treasury Department that indicate its final interpretation of specific IRS Code sections. A taxpayer may rely on final regulations when computing his or her taxes.

Reduction Rules

The reduction rules are federal income tax rules that reduce the amount of the charitable deduction available for gifts of certain kinds of property.

Normally, the charitable deduction for a gift is based on the fair market value of the gift at the time of donation. The basic reduction rules says, however, that the deduction must be reduced by the amount of gain in the property that would not have been treated as long term capital gain if the donor had sold the property for its fair market value.

Qualified Dividends

Defined in the Jobs and Growth Tax Relief and Reconciliation Act of 2003 (JGTRRA), qualified dividends are the ordinary dividends received in 2003 or after that were subject to the same 5% or 15% maximum tax rate that applied to net capital gain. The American Taxpayer Relief Act of 2012 (signed on January 2, 2013) made qualified dividends a permanent part of the tax code but added a 20% rate on income in the new highest 39.6% tax bracket.

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