October 25, 2005

Good news from Washington--on September 23, 2005 the House and Senate unanimously passed the Hurricane Katrina relief bill making changes to tax law designed to encourage certain outright gifts of cash made between August 28, and December 31, 2005, to public charities such as Southwestern University.

The plight of the people of the Gulf Coast touched the hearts of all Americans after the devastation of Hurricane Katrina, and many are extending a helping hand--both literally and figuratively--to the victims of this disaster. Thanks to special legislation, taxpayers will not have to choose between doing their part for hurricane relief and their regular support of favorite charitable organizations. While, under existing law, the maximum amount of cash contributions deductible in any one year is 50% of adjusted gross income, that limit is being increased to 100% of adjusted gross income in the case of certain cash gifts made during the stipulated period.

Example: A taxpayer whose adjusted gross income for 2005 is $250,000 has already made charitable contributions of $50,000 prior to August 28. The taxpayer can make additional deductible charitable contributions of up to $200,000 in 2005. This would reduce her income-tax liability to zero.

Highlights

* Individual contributions--unrestricted or restricted--may be made to any qualified public charity whether or not the charity is engaged in Katrina relief.

* Gifts must be outright gifts of cash made between August 28 and December 31, 2005.

* Cash gifts will not be subject to the tax reduction rule that reduces itemized deductions by 3% of the amount by which adjusted gross income exceeds $145,950.

* A contribution to a private foundation, a supporting organization, or a donor advised fund would not qualify for the higher limit.

* Corporate deductions (normally limited to 10% of taxable income) are deductible up to 100% if gifts are made to Katrina relief during the allowed time period.

2005 Gift Opportunities with IRAs and Qualified Retirement Plans.

Because of the increase in the deduction limit, taxpayers over the age 591/2 have a special opportunity for the rest of 2005 to withdraw funds from their qualified retirement plans and IRAs and make additional contributions to charity. Such withdrawals will be added to adjusted gross income and will be fully deductible, thereby eliminating any tax on the withdrawal. Clearly this plan would appeal only to those who have sufficient assets to meet their personal needs. This plan is not without potential pitfalls. The increase in adjusted gross income--because of the withdrawals--could adversely affect the available deduction for medical and casualty losses and for personal exemptions. And while the charitable deduction for the contributed withdrawals is not subject to the 3% reduction rule for itemized deductions, the increase in adjusted gross income could result in the reduction of other itemized deductions and personal exemptions.

We hope you will consult your tax advisors about both the optimum amount to contribute in 2005 to your favorite charities like Southwestern, and the advisability of making such contributions. If you have further questions, please feel free to call Kent Huntsman, Associate Vice President for Development or April Hampton Perez, Senior Director of Gift & Estate Planning at (800) 960-6363.

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