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Tax Deductions, Tax Credits and Charitable Contributions

by Kelsey Gardipee | Dec 9, 2021 9:15:00 AM

By now, let’s hope you’ve finished your holiday shopping and are focused on wrapping presents and spending time with family and friends. If not, shipping deadlines are fast approaching. Ease your shipping stress by finishing out your shopping list by supporting small businesses.

While you’re checking off your list, don’t forget that charities would love to receive a gift from you, too. Whether you take standard or itemized deductions for your business or personal taxes, here’s what you need to know about charitable contributions.

Federal Deduction Details

Temporary CARES Act provisions have been extended to allow donors to deduct cash donations of up to $300 made by Dec. 31, 2021. Married couples filing jointly may deduct up to $600. This renewed provision permits individual taxpayers to claim an “above-the line” deduction for charitable donations made in 2021, as long as they aren’t itemizing their deductions. This deduction will lower both taxable and adjusted gross income, leading to a slight tax savings. Nearly nine in 10 taxpayers take the standard deduction, so this provision applies to the majority of Americans.

Qualifying donations must be made by cash payment, check, credit or debit card and may not include securities, household items, property or other in-kind gifts. Donations made to supporting organizations or donor-advised funds do not qualify under this special provision. Recordkeeping rules, outlined by IRS Publication 526, will apply, so be sure to obtain a receipt or acknowledgement letter before filing a return.

Before making your donation, BBB encourages donors to verify that an organization is eligible to receive tax-deductible donations by using the IRS’ Tax Exempt Organization Search tool. Then, pop on over to Give.org to read their Charity Review report.

State Tax Credits and Deductions

For both individuals and businesses across the Great West + Pacific, there are additional opportunities to deduct charitable contributions or earn tax credits worth consideration.

Businesses in Alaska: Through the Alaska Education Tax Credit Program — renewed through 2024 — private businesses are allowed a credit against the Alaska Net Income Tax (Corporate Tax), Mining License Tax, Fisheries Business Tax, Fishery Resource Landing Tax, Oil and Gas Production Tax, Oil and Gas Property Tax or Insurance Tax for cash contributions made to qualifying programs. This credit to reduce taxable income is calculated at 50% of qualifying expenditures and may be claimed as a contribution for the value of the donated equipment, as determined by appraisal consistent with regulations. The maximum combined credit is $1,000,000. This tax credit incentivizes businesses to support schools and educational facilities in Alaska.

Individuals and Businesses in Colorado: Individuals or married couples filing jointly that claim the standard deduction on their federal taxes and have made a qualifying charitable contribution of money or property can claim the Colorado charitable contribution subtraction. Generally, the charitable contribution subtraction reduces the total qualifying contributions by $500. The publication FYI Income 48 provides more detail on qualifications for taxpayers and valuation of donations. Another option, available to businesses and individuals, is the Enterprise Zone Contribution Tax Credit for certified contributions made to targeted enterprise zones projects to boost development in economically distressed areas of Colorado. These 16 zones have high rates of unemployment, low per capita income and slow population growth. Taxpayers can claim 25% of a cash donation or 12.5% of an in-kind donation as a state income tax credit, with a maximum of $100,000 per taxpayer per tax year. The balance of unused credits may be carried forward up to five years. Taxpayers do not need to be located in an enterprise zone to contribute to enterprise zone projects; but businesses must be legal under state and federal law. Review active contribution projects and reach out to enterprise zone administrators for certification prior to claiming this credit.

Individuals and Corporations in Idaho: In the state of Idaho, Statute 63-3029A encourages support for institutions of higher learning. The statute is an income tax credit allowing individuals, taxpayers and corporations to deduct certain charitable contributions. Individual credits cannot exceed 50% of a person’s total income tax liability or $500, whichever is less. For corporations, the allowable credit may not exceed 10% of its total income or franchise tax liability or $5,000, whichever is less. The statute outlines their definition of a qualifying institution.

Individuals and Businesses in Montana: Individuals, corporations, small businesses, partnerships, trusts and estates may take advantage of the Montana Endowment Tax Credit (METC) for donations made to endowments defined in 15-30-2327, MCA. Capped at $10,000 for individuals or $20,000 for married couples filing jointly, taxpayers may be credited 20% of a gift made to qualified endowments or 40% of the present value of a planned gift. Credits may not exceed a taxpayer’s income tax liability. 

Individuals and C Corporations in Oregon: The Cultural Trust Tax Credit helps fund cultural activities in the state of Oregon and benefits individual taxpayers with a dollar for dollar credit on their tax return, lowering their amount owed. Make a donation to any of the 1600+ nonprofits on the Oregon Cultural Trust list and then make a matching gift to the Oregon Cultural Trust. The amount of your gift to the cultural trust will be credited on your state income taxes. Credits of up to $500 will be provided for individuals, $1,000 for couples filing jointly and $2,500 for Class-C Corporations. Even if you don’t itemize deductions on your federal return, you may claim this credit on your state tax return, up to the allowable limit.

Businesses in Washington: Through the Main Street Tax Credit Program, Washington businesses may claim a Business & Occupation (B&O) or Public Utility tax (PUT) credit for private contributions made to eligible downtown organizations. Businesses must apply for the credit with the Department of Revenue and file excise taxes electronically. The approved tax credit is worth 75% of the contribution made to a qualified downtown revitalization organization. Businesses can also donate to the Main Street Trust Fund for a credit of 50% of the donation, up to $250,000. If supporting a downtown organization that’s a 501c(c)3, you may also be eligible for a federal income tax deduction. While the contribution deadline passed on Nov. 15, applications for 2022 will be accepted after Jan. 10, 2022. The statewide allocation is capped at $5M and is available on a first-come basis.

Let’s close out 2021 with a little bit of generosity. Find a BBB Accredited Charity to support and celebrate the end of a roller coaster of a year.

Better Business Bureau does not intend to provide legal, tax or accounting advice. Please consult your tax advisor concerning the tax credits and deductions referenced above. Find a trustworthy tax professional at BBB.org.

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