Colorado residents are in a unique position with regards to the tax benefits of certain charitable gifts made. While most qualified charitable gifts made will entitle the donor to a Federal and State tax deduction (assuming the taxpayer itemizes), certain gifts made to qualifying Colorado Child Care and Enterprise Zone Programs entitle taxpayers to a Colorado tax credit of 50% and 25%, respectfully. A tax credit is far superior to a tax deduction since it reduces your Colorado tax dollar for dollar. The tax benefit of a tax deduction is the contribution amount times your marginal tax rate, while the tax benefit of a credit is that it is a dollar for dollar reduction in the tax. Hence, tax credits are much more attractive than deductions.
Child Care Tax Credit – Denver Metro
The Colorado State Child Care Contribution Tax Credit will enable you to receive a 50% Colorado state tax credit for any cash gift of $350 or more. This is in addition to the applicable state and federal charitable deductions currently allowed. Your participation in this program offers the opportunity to take an active role in providing quality programs for children in Colorado and to assist in bringing character-building programs to those least able to procure it on their own.
General guidelines for participating in the Child Care Tax Credit Program:
- Your gift of $250 or more may be eligible for a State of Colorado tax credit worth 50% of your gift amount;
- Indicate Child Care Tax Credit on the Memo line of your check payable to the organization chosen;
- Gifts must be postmarked on or before December 31st of any given tax year for the credit to be authorized for that year;
- Child care tax credits may be rolled forward for up to five years from the date of donation.
Enterprise Zone Program– Denver Metro
The Enterprise Zone offers a 25% Colorado state tax credit to those who make cash donations to qualifying homeless housing programs. In addition to generating a Colorado tax credit, your contribution is deductible as a charitable gift for reducing federal taxes.
The goal of the program is to encourage greater private sector support of homeless facilities, and the financial help will allows provision for skills training and personal development necessary for independent living and self-sufficiency.
General guidelines for participating in the Enterprise Zone Program:
- Your gift of $250 or more will generate a State of Colorado tax credit worth 25% of your gift amount;
- Indicate Enterprise Zone on the Memo line of your check payable to qualifying organization;
- *Due to new 2012 legislation, the qualifying organization must now have your Colorado account number or the last four digits of your social security number in order to process your tax credit;
- Gifts need to be postmarked on or before December 31st of any given tax year for the credit to be authorized for that year;
- Credits are limited to your state tax liability for that year of $100,000;
- Credits may be carried forward for five years if your tax liability is exceeded in the year of the gift.
For more information and the link to qualifying organizations, click here:
2018 Tax cut & Job Act
Allow me to share some thoughts about the new tax bill related to charitable giving.
Tax benefits (deductions) of charitable gifts is increased from 50% to 60% of adjusted gross income in 2018 and beyond.
Tax rates for many will drop 4% to 6% making the benefit of the deduction less. Since tax credits are dollar for dollar, they become more beneficial on a relative basis.
Furthermore, since there is now an overall limit of $10,000 (joint) for state and local income tax deductions using charitable tax credit programs to reduce state income taxes won’t typically create an increased Federal tax (due to the lost deduction).
The standard deduction is increased to $24,000 for joint filers. Taxpayers who do not have high home interest deductions (Home Equity loans no longer qualify) or high medical expenses may want to consider bunching charitable deductions and state property taxes in one year and taking the standard deduction in the next year.
For taxpayers that reach age 70.5 and must now begin to take out their required minimum distribution- by directing the distribution (or any portion) to a qualified tax credit program mentioned above, not only does this portion of the gift escape taxation (up to $100,000/yr.) but you can receive the Colorado tax credits of either 50% or 25%, depending upon the program contributed to. This is the equivalent of getting 25% to 50% of the gift back, while making a significant gift to charity on a pre-tax basis. This is indeed turbocharged tax leverage!
As always, please consult your qualified tax counsel for how these rules apply to your unique situation and do not hesitate to contact us if we can be of further assistance.
This information has been obtained from sources deemed to be reliable but its accuracy and completeness cannot be guaranteed. Please note, changes in tax laws may occur at any time and could have a substantial impact upon each person's situation. While we are familiar with the tax provisions of the issues presented herein, as Financial Advisors of RJFS, we are not qualified to render advice on tax matters. You should discuss tax matters with the appropriate professional.