NEW FEDERAL RULES SURROUND CHARITABLE DEDUCTIONS, TAX CREDITS
Q: Tell us about the new federal rules surrounding charitable deductions and tax credits.
A: The Internal Revenue Service and U.S. Treasury Department have issued proposed guidelines for new treatment of charitable donations that entitle taxpayers to state tax credits. Now, taxpayers who receive a state tax credit for a charitable donation will have to reduce their federal tax deduction by the amount of the state tax credit they receive. In other words, if you make a $1,000 donation to a charity and receive a $300 state tax credit, you’ll now only be able to claim a federal charitable deduction of $700.
Q: Is there still a chance this will change? A: The proposed rules were issued in August, and the comment period remains open. So, it’s possible this could still change. But if it doesn’t, the rules will be retroactive to the date the rules were issued. That means they’d apply to any donation made after Aug. 27.
Q: How will this affect Oklahoma taxpayers?
A: Any Oklahoman who claims a state tax credit for a charitable donation will potentially be impacted. The list of Oklahoma tax credits that could trigger the new rule include tax credits for donations to biomedical research, cancer research, scholarship-granting organizations and educational improvement grant organizations.
Q: Will this apply to state tax returns, too?
A: The new rule technically would affect only federal deductions. But state tax deductions are taken directly from the federal return. Unless this changed, state deductions also would be reduced.
Q: Will this impact giving levels to charities where donations qualify for tax credits?
A: I hope not. For the state tax credits I mentioned above, a tax credit plus a reduced deduction would still be a bigger tax savings than just a full deduction. So, if you give to a charity that nets you a tax credit, from a tax perspective, that’s still the best deal out there.