NJ CA? charity tax credits

Technical topics regarding tax preparation.
#1
WEISSEA  
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WSJ reports NY, NJ and maybe CA are have or are looking at ways to circumvent the $10K cap on SALT specifically having the taxpayer get a property tax credit for making a charitable donation(Fed tax deductible) to a municipal charitable fund.
Seems like this violates the "no goods or services" requirement of IRC 170(f)(8). Am I missing something?
 

#2
Nilodop  
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#3
WEISSEA  
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Great article, thanks.
 

#4
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Just out, Notice 2018-54 informs taxpayers that Treasury and the IRS intend to propose regulations concerning tax treatment of payments taxpayers make for which taxpayer receive credit against their state and local taxes. Also says Federal law not state law governs.
 

#5
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Some states have offered this for years, haven't they? For some reason Arizona sticks in my mind as one state that has done this. I wonder if this will affect well-established programs that clearly did not have tax avoidance as their main driver?
 

#6
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"Some states have offered this for years, haven't they?" Yes, California has had the College Access Tax Credit since 2014.
 

#7
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I wonder if this will affect well-established programs that clearly did not have tax avoidance as their main driver?

Could be. CA College access Credit is 50% of donation. $500M set aside each year, only $8.3M credit in 2015, not much interest so probably didn't get the attention of the Feds. Could result in tax payer having to reduce his/her deduction by the 50% credit received( or maybe the taxpayers already have done this)

Compare this to the proposed SB 227the “Protect California Taxpayers Act,” which would allow taxpayers to make a charitable donation to the California Excellence Fund, and in return, to receive a dollar-for-dollar tax credit against their state income tax liability for the amount of the contribution.
 

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Of course, since they're going the regulation route, it opens it up for the inevitable lawsuit and court challenges.

The safer reply to the $10k limitation is to transition the income tax on wages to be an employer-side payroll tax. States with flat income taxes could do that incredibly easily.
 

#10
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missingdonut wrote:The safer reply to the $10k limitation is to transition the income tax on wages to be an employer-side payroll tax. States with flat income taxes could do that incredibly easily.


Or, as California will (I hope) do someday, reduce regressive sales taxes which are rarely deductible for individuals, and offset by increasing services taxes on businesses, which will always be deductible. The business employees and owners will of course benefit from the sales tax reduction as individuals, making it a net win for the state (shifting non-deductible state taxes to deductible).
 


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