Beginning tomorrow (August 28th), the federal deduction for certain charitable contributions may never be the same. Quick action now could save you money when you file your taxes next year!
Over the weekend, the Department of the Treasury issued a proposed regulation that changes the amount of contribution that is deductible on the federal tax return for contributions that also receive state and or local tax credits. Until now, the full amount of the contribution made was deductible for federal tax purposes, even when a Colorado tax credit (either 25% or 50%, depending on the type of contribution) was received. Under this new proposed regulation, the contribution deduction allowed on the federal return will be reduced. For example, if you donated $1,000 and received a $500 state tax credit, only $500 would be allowed as a deduction on your federal tax return instead of $1,000.
Under the proposed regulation, any contributions made before tomorrow, August 28th, fall under the old treatment. Any contributions made after today fall under the new guidelines.
If charitable contributions to organizations qualifying for Colorado credits are a significant part of your tax planning strategy, please contact us immediately so that we can discuss any action that should be made before the enactment of the new regulation.