Tragedy and opportunity. They travel together hand in hand. There has rarely been, maybe never been, a tragic event that didn’t spur some opportunistic endeavor for those that pay attention.
Some of you may think I am talking about those who took advantage of an evacuated city by looting the local Walgreens.
That’s not what I mean.
The New Orleans Walgreens the national news photographed after Katrina showed looters taking anything they could find. That image has unfortunately replaced the much more appealing image of a picture of my mother and father crossing the street in front of the same Walgreens around 1950. It has always been one of my favorite pictures, and I am more than a little miffed that some unsavory opportunists have managed to scar that memory for me.
I am talking about opportunities that will help both the people that need help and the people that want to help. In this case it is the “Hurricane Katrina Tax Relief Bill.”
The information I want to relay to you comes from the Internal Revenue Service Web site at www.irs.gov. It states, “Taxpayers affected by the hurricane may be eligible for tax relief, regardless of where they live. Deadlines for affected taxpayers to file any returns, pay any taxes and perform other time-sensitive acts have been postponed to January 3, 2006.” The areas in Mississippi have been split between “individual assistance areas” (where tax relief will be automatic) and “public assistance areas” (where people will have to identify themselves before receiving assistance).
As I read through the relief guidelines, my focus was a bit different than most people. I would guess that most people want to know what the tax relief bill can do to help them, especially with their taxes. After all it is a “tax relief bill.”
I wanted to know if there was anything in the bill that may help my clients reach their investments goals.
I have clients in about 35 states, so most of them were not personally affected by the hurricanes. However, almost all of them have stated that they would like to do something to help.
The tax relief bill not only allows for tax relief for those who have been affected, it offers tax relief for those that want to help as well. The catch is that you have to enact your plan before the end of the year. So this is something you may want to start looking into right away.
The most intriguing aspect of this bill from an investor’s point of view is that the IRS has abolished the limits on gifts to a bona fide charity that is supporting the relief effort. People who donate cash will be able to deduct the entire amount as opposed to the 50% of adjusted gross income limit usually applied, and they have also waived the 10% income limit on corporate donations.
Two of the most popular estate planning vehicles today are the Charitable Remainder Trust, or CRT, and the Charitable Lead Trust, or CLT. Both trusts use the leverage of tax incentives to allow money that would normally go to the government at your death to bypass the estate tax as long as it benefits a bona fide charity.
One catch has always been that these are normally large gifts, and the donor has to comply with some pretty strict regulations when taking his/her immediate deduction for that gift. If planned correctly, it appears that the Hurricane Katrina Tax Relief Bill will allow for a much greater immediate deduction than you have been allowed in years past.
The only catch is that you have to implement your plan by the end of the year. So, if you have been thinking about using a CRT or a CLT in your estate planning or if you have felt the emotional impact of this tragedy and have thought about making a large donation to the cause, this might be just the right time to consult with your trusted advisors and see if you can take advantage of this short window of opportunity.
As I have said before, that group of trusted advisors will consist of your financial advisor, your CPA and your tax attorney. I would think you would want to talk with all three before you make a final decision. I prefer to get them all in one room so I can get a consensus before moving forward.
Whatever you do, don’t wait too long to do it, because these things take some planning and you can’t walk into one of their offices in the last week of December and expect to get it done.
Contact MBJ contributing columnist Scott Reed, CIMA, CWA, AIF, of Hilliard Lyons, member NYSE & SIPC, in Tupelo at firstname.lastname@example.org. Hilliard Lyons does not offer tax advice. Please consult your tax advisor before making any decision that may affect your tax situation.