Taxation

The personal exemption is the amount by which a taxpayer can reduce his or her taxable income that is based on the number of financial dependents the taxpayer has. Typically, a married person who files jointly with his spouse can declare a personal exemption for himself, his spouse, and any financially dependent children.

For example, the personal exemption amount is $4,000 per person in 2015. If a taxpayer declares four personal exemptions for 2015, the taxpayer's taxable income will be reduced by 4 x $4,000 or $16,000.

Ordinary income property is property that will be subject to ordinary income tax rates if sold by or distributed to a taxpayer.  A U.S. Savings bond, for example, is ordinary income property because when it matures, the difference in its face value and the amount the owner paid for it is subject to tax at ordinary income tax rates.

A charitable gift of ordinary income property is subject to deduction reduction rules.

Ordinary income is income that is subject to ordinary income tax rates.  Some of the most common sources of ordinary income include wages, dividends, interest, and retirement plan distributions.

The Jobs and Growth Tax Relief and Reconciliation Act of 2003 (JGTRRA) created a special sub-class of ordinary income called qualified dividends, which are taxed at a flat rate of 15%, regardless of the ordinary income tax bracket the taxpayer is in otherwise.

Donors with modified adjusted gross income (MAGI) above an applicable threshold pay a 3.8% surtax called the Net Investment Income Tax or NIIT. This surtax is imposed on the lesser of (1) net investment income or (2) the amount by which modified adjusted gross income (MAGI) exceeds the applicable threshold. It is imposed on top of the taxpayer’s regular income tax. The tax took effect on January 1, 2013.

Modified adjusted gross income, or MAGI, is a variation of adjusted gross income. There are different MAGIs computed for different purposes.

In the context of Planned Giving and our Planned Giving Manager software, MAGI determines whether a taxpayer is subject to the Net Investment Income Tax (Medicare Surtax). In this case, MAGI equals AGI plus any foreign earned income exclusion.

Taxpayers with a MAGI above the applicable threshold pay Medicare surtax on the lesser of (1) net investment income or (2) the amount by which MAGI exceeds the threshold.

The Massachusetts 2-G is a Massachusetts state tax form for reporting income, deductions, credits, etc. of a grantor-type trust.  Massachusetts charities report pooled fund income to their Massachusetts participants on this form.

Depreciation is a reduction in the stated value of commercial property, such as the assets of a business, for financial purposes.  The amount of depreciation taken in a particular tax year is deductible from the taxes owed by the owner of the depreciated property, but also reduces the owner's cost basis in the property.  Straight-line and accelerated are just two of several forms of depreciation.

This is the amount of gift and estate tax lifetime exclusion unused by a person's deceased spouse and therefore available for use by the surviving spouse in addition to his or her own gift and estate tax exclusion.  If a person has survived more than one deceased spouse, only the unused exclusion of the last deceased spouse is available.

Death tax is a state tax that is assessed on the assets in a person's estate after the person dies. Until The Economic Growth and Tax Relief Reconciliation Act of 2001 (EGTRRA), the death tax schedule in many states exactly matched the state death tax credit schedule applicable to federal estate taxes (the so-called “sponge” tax).  The result was that in these states the total of federal estate tax and state death tax equaled the federal estate tax that would be due if there were no state death tax.

Capital gain income tax is the tax assessed on capital gain income, the income that is reported on Schedule D of Form 1040.

The taxation of capital gain income is complicated. It depends on the type of property that was sold, the length of time that the seller held the property, and the seller's taxable income.