IMPACT OF 2001 TAX LAW
The Economic Growth and Tax Relief Reconciliation Act of 2001 introduced numerous changes to tax laws. These changes touched upon many areas, including income tax, gift and estate tax and generation skipping transfer tax, child-related provisions, marriage penalty provisions, alternative minimum tax, educational incentives and retirement incentives. All the Tax Act provisions will "sunset" in 2011, which means a return of the law to the provisions in effect before enactment of the new law.
Because of the new tax law, most individuals are being encouraged by their attorneys to review their estate plans. This is a perfect time, therefore, to consider the best ways to provide for loved ones and charitable organizations like the Child Welfare League of America.
The following is a brief summary of the major provisions that will have the most direct impact on charitable giving, changes to the income tax and estate tax.
Changes in Income Tax Rate Provisions:
- A new 10 percent regular income tax bracket was instituted on January 1, 2001, which applies to the first $6,000 of taxable income earned by single individuals, $10,000 of taxable income for heads of households, and $12,000 of taxable income for married couples filing joint returns. Beginning in 2008, the 10percent rate will apply to the first $7,000 for individuals and $14,000 for heads of households or married couples filing jointly.
- In addition, income tax rates are being gradually reduced between now and 2006. On July 1, 2001, a 1percent rate reduction became effective for each income tax bracket with further reductions of 1percent each, scheduled in 2004 and 2006. The rates for 2001 are 39.1percent, 35.5percent, 30.5percent and 27.5percent.
- Also, the phase-out of itemized deductions and personal exemptions for most high-income taxpayers will be gradually repealed. These phase-outs are reduced by one-third in 2006 and two-thirds in 2008. The phase-outs are eliminated beginning in 2010.
Changes in Estate Tax Provisions:
In summary, the best gift planning strategies will depend upon your personal circumstances, your assets, your financial goals, tax consideration, needs of loved ones, and the commitment you would like to make to the charities you care most about.
- Beginning in 2002, the top estate tax rate was reduced to 50percent and the 5percent surtax on large estates was eliminated. This tax rate will be gradually reduced to 45percent in 2009.
- The Unified Credit (the amount that you can pass tax-free) has been increased to $1 million. In 2004 it will increase to $1.5 million, and in 2006 to $2 million. For gift taxes, however, the Unified Credit remains at $1 million.
- Beginning in 2003, the top gift and estate tax rate is reduced to 49 percent and then further reduced 1 percent each year until 2007 when it reaches 45 percent.
- Beginning with repeal of the estate tax in 2010, inherited property will have "carryover basis," which means that when you sell inherited property you will pay capital gains taxes on all appreciation from the original date of acquisition (rather than from the date of inheritance)
- The gift tax is retained after repeal of the estate tax, but the top gift tax rate will be tied to the top individual income tax rate, which will be 35 percent.
For more information, call us at 703-412-2400 or email firstname.lastname@example.org
The Child Welfare League of America is not engaged in rendering legal or tax advisory service.
Please notify your attorney or other professional advisor for advice or assistance in specific cases
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