Thrailkill Harris Wood & Boswell PLC provides information of general interest. Information is presented in summary form and should not be construed as individual legal advice.

Other Matters

Katrina

            Katrina Emergency Tax Relief Act.  To encourage taxpayers to contribute to relief efforts and other charitable causes after Hurricane Katrina, the Katrina Emergency Tax Relief Act modified certain provisions of the federal income tax law for contributions made on or after August 28, 2005 and through December 31, 2005.  Prior to this legislation, an individual taxpayer could make deductible cash contributions to charity of up to 50 percent of the taxpayer’s adjusted gross income.  Furthermore, for married taxpayers having adjusted gross income in excess of $145,950, itemized deductions (including charitable contributions) were subject to reduction, based upon the taxpayer’s income in excess of this threshold.

            For cash contributions to charitable organizations (excluding certain private foundations, supporting organizations and donor advised funds) made on or after August 28, 2005, and on or before December 31, 2005, contributions will not be subject to either of the foregoing limitations.  In addition, these limitations are inapplicable, regardless of whether the contribution is directed for Katrina related relief or other charitable causes.  For example, a taxpayer who itemizes may make a $1,000 gift to a qualifying charity within the appropriate timeframe and receive a $1,000 deduction, not reduced by the limitations.  Because these provisions expire on December 31, taxpayers may consider accelerating future charitable contributions into 2005. 

            Estate and Gift Tax Changes.  Beginning January 1, 2006, the federal estate tax “applicable exclusion amount” increases from $1,500,000 to $2,000,000.  The federal gift tax lifetime exemption remains at $1,000,000.  Furthermore, the annual gift tax exclusion increases from $11,000 to $12,000 per individual.  Consequently, a husband and wife jointly may make non-taxable gifts to each of their children in the amount of $24,000 commencing in 2006.  This will also increase the limitations for gifts to a Section 529 plan for educational expenses. 

            Limited Liability Company Act.  Last of all, Tennessee has revised its limited liability company act effective January 1, 2006.  Existing limited liability companies may either continue to be governed by the old act or elect to be governed by the new act by filing an amendment to the LLC’s articles of organization. 

            The most significant changes in the new act are its (1) relative simplicity compared to the old act, (2) new management structures provided for under the new act, and (3) new provisions governing LLCs which may restrict the right of a family member to withdraw from an LLC.  Because of these changes, existing LLCs may wish to elect to be governed by the new act.