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New York taxpayers should be aware of new regulations

| Jun 14, 2019 | Tax Controversies |

One of the most popular deductions that White Plains residents may prefer to take on their taxes is the charitable deduction. This deduction allows those who contribute to qualified not-for-profits, often a 501(c)(3) corporation, to strike that amount from their adjusted gross income as an itemized deduction.

For those who itemize their tax deductions and who also give to charitable organizations, their donations can save them thousands of dollars in tax liability. However, donors do need to be careful, because the IRS watches how taxpayers use these deductions carefully. The agency will not hesitate to close loopholes and then enforce perceived rule violations.

In this respect, the IRS recently announced new clarifying regulations on charitable deductions. Without these regulations, taxpayers could in theory enjoy the benefit of both a charitable deduction and a dollar-for-dollar tax credit at the state or local level, as some local governments do offer credits for contributions to charities.

The recently clarified rules prohibit this practice. If a person receives a credit on state or local taxes because of a charitable donation, the taxpayer must reduce that donation by the amount of the credit. So, for example, if he donated $1,000 to charity but received a $500 credit from the state taxing authority, the deduction is $500.

A tricky part of this new rule is that state tax deductions remain unaffected. So, if a taxpayer contributes $1,000 to charity and can take that as a deduction on taxes, as opposed to a dollar-for-dollar credit, she still can claim a $1,000 deduction on her federal taxes.

Tax controversies surrounding charitable deductions can cause a real headache for New Yorkers, but having the assistance of an experienced attorney can help.