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Deducting Charitable Contributions as Business Expenses

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According to a recent announcement, the IRS is planning on issuing a series of regulations concerning the availability of charitable contribution deductions to business taxpayers. Fortunately, the proposed rule changes do not impact the availability of deductions for businesses that donate to charities or government entities and who receive state or local tax credits, as these companies are still considered eligible to deduct the payments as business expenses.

Despite the recent clarifications made by the IRS, this area of the tax code remains complex, so if you are a business owner and have questions about which of your contributions will qualify for both state or local credit, as well as deductions for business expenses, you should speak with an experienced tax return preparation attorney who can explain your options.

Deducting Business-Related Payments  

Business owners who make payments to charities or government groups are often eligible to not only receive state and local tax credits for those payments, but also to deduct them as business expenses on their federal income tax returns. The latter is available to any business taxpayer, whether or not that person does business as a sole proprietor, corporation, or partnership, as long as the payment is considered an ordinary and necessary business expenses.

Proposed Regulations  

Under recently proposed regulations, taxpayers who make payments or transfer property to a charity or entity that qualifies for tax deductible contributions would be required to reduce their charitable deduction by the amount of state or local tax credits that they expect to receive. For instance, if Florida granted a 70 percent state tax credit on those who pay $1,000 or more to a qualifying charity, the taxpayer would be eligible to receive a $700 state tax credit, as the business owner would need to reduce the $1,000 contribution by the $700 tax credit, leaving a deduction of $300 on his or her tax return. This rule would apply equally to payments made by trusts or a person’s estate.

There are also exceptions to the proposed rules that apply in situations involving:

  • Dollar-for-dollar state tax deductions; and
  • Tax credits that equal up to 15 percent of a payment total or the fair market value of the transferred property in question.

If, for example, a taxpayer made a $1,000 contribution to a charity or government entity, he or she wouldn’t need to reduce that total on a federal income tax return if the tax credit received is $150 or less.

Contact Our Office Today  

If you own a business in Florida and have questions about the proposed rules and how they could affect your own ability to deduct business expenses, while also taking advantage of state and local tax credits, please contact dedicated Florida tax return preparation attorney Ronald Cutler, P.A. at 386-490-9949. We know our clients lead busy lives and so take great pains to accommodate their schedules by being willing to make appointments on weekends. Please call us or send us an online message today to schedule your own free case evaluation.

Resource:

irs.gov/newsroom/clarification-for-business-taxpayers-payments-under-state-or-local-tax-credit-programs-may-be-deductible-as-business-expenses