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Charitable Contributions and State and Local Tax Credits

09/18/2018

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Guidance has been issued by the IRS providing rules on the availability of charitable deductions when a taxpayer receives or expects to receive a corresponding state or local tax (SALT) credit. Under the proposed regulations, taxpayers who make payments or transfer property to an entity eligible to receive deductible contributions must reduce their charitable deductions by the state or local tax credit amounts they receive or expect to receive. 

This will affect residents in states that passed laws to bypass the new $10k limit on state and local tax deductions. (IR-2018-172

The attorneys general of CA, CT, NJ, and NY have filed joint comments opposing proposed IRS regulations on the availability of federal charitable contribution deductions for taxpayers receiving a corresponding SALT credit. The proposed regulations block states and localities from setting up charitable funds to preserve the deductibility of property taxes in response to the limitation on the SALT deduction. The proposed regulations would require taxpayers to subtract the value of any SALT credits that they receive from their charitable donation deductions.

Can my business still deduct charitable gifts when we file our federal tax return? Under the Tax Cuts and Jobs Act (TCJA), some rules have changed; however, the longstanding rule allowing businesses to deduct payments to charities as business expenses remain unchanged. 

Also, use caution when making charitable contributions to storm victims to avoid the scams that often follow major disasters. The IRS recommends using its search feature, Tax-Exempt Organization Search, to help find or verify qualified charities. We recommend making contributions only by check or credit card and don’t provide personal information, such as a Social Security number. (IR-2018-18)

Download the 2018-19 Tax Planning Guide

LBMC tax tips are provided as an informational and educational service for clients and friends of the firm. The communication is high-level and should not be considered as legal or tax advice to take any specific action. Individuals should consult with their personal tax or legal advisors before making any tax or legal-related decisions. In addition, the information and data presented are based on sources believed to be reliable, but we do not guarantee their accuracy or completeness. The information is current as of the date indicated and is subject to change without notice.