New Regulations on Charitable Donations and State Income Tax

Share on facebook
Share on google
Share on twitter
Share on linkedin
IR-2018-172 was designed to clarify the impact that state and local tax credits have on the federal tax rules for charitable contribution deductions.

As another rule change motivated by the Tax Cuts and Jobs Act, late last week—on August 23rd—the IRS issued proposed regulations on charitable giving that can impact our clients who live in places that have a state or municipal income tax.michael-lonfeldt-592692-unsplash

Fortunately for our clients in Florida, Texas, and the five other states with no state income tax, this new ruling doesn’t affect their taxes.

However, for everyone else, IR-2018-172 was designed to clarify the impact that state and local tax credits have on the federal tax rules for charitable contribution deductions.

Under the proposed regulations, when a taxpayer who donates money or transfers property to an entity that’s eligible to receive tax deductible contributions, the taxpayer will now have to reduce their federal charitable deduction by the amount of any state or local tax credit the he/she receives.

In other words, if your state gives you a 70 percent tax credit for donations and you donate $1,000 in cash or equivalent to an appropriate entity, you would receive a $700 tax credit on your state income tax return. In that instance, the allowable deduction on your federal income tax return would be reduced to $300—$1,000 minus $700.

(The proposed regulations also apply to payments made by trusts or decedents’ estates in determining the amount of their contribution deduction.)

The exception to this calculation is if the state or local tax credit is 15 percent or less of the value donated. In the above example of $1,000 donated, the amount of the donation would not be reduced on your federal tax return, because the state or local tax credit would be $150 or less.

The proposed regulations provide exceptions for dollar-for-dollar state tax deductions and for tax credits of no more than 15 percent of the payment amount or of the fair market value of the property transferred.

0/5 (0 Reviews)

Procrastination Could Be Hurting Your Business

Procrastination puts undue stress on the organization and disrupts teamwork.

Read More

Mission Statement vs Vision Statement

Mission and vision statements are often confused with each other but are separate core elements of your company’s strategy.

Read More

Most Start-Ups Fail. Here Are Some Things Not to Do to Increase Your Odds of Success

We all make mistakes. But when you’re starting a business, the mistakes you make can be catastrophic. Here’s a handful of do’s and don’t’s . . .  mostly don’t’s . . . to get your business going in the right direction. Don’t Sell Something Nobody Wants Although that seems...

Read More

If You Own a Business . . .

There could be substantial money in your pocket if you focus on your 2018 taxes today rather than waiting until the end of the year. 

Read More

Travel Per Diem Rates and the Tax Cuts and Jobs Act

The IRS allows the use of per diem rates to make reimbursements easier for employers and employees.

Read More

The Problem with Networking Events

Unless there’s an awesome speaker or some other exceptional attraction offered, just exchanging business cards with people you’ll never see again is the definition of unproductive.

Read More
Share on facebook
Share on twitter
Share on linkedin

Leave a Comment

About Us

Since 1981, we bring measurable results to business owners who want to preserve wealth, boost operating capital, minimize their tax burden, and soar in today’s challenging business environment.

Recent Posts

Sign up for our Newsletter

Scroll to Top
%d bloggers like this: