Legislation would allow Californians to donate money to the state instead of pay tax

[Y2KEA]

Now California is creating their own tax loopholes. An interesting concept if they can make it fly. What say you?

Californians might soon be able to make donations to the state in an effort to blunt the effects of the federal tax overhaul recently signed by President Trump.

Senate President Pro Tem Kevin de León (D-Los Angeles) is planning to introduce legislation that would allow Californians to count a portion of their tax bill as a donation, which would circumvent the federal GOP’s tax plan’s cuts to state and local tax deductions. Charitable donations remain deductible on federal taxes.

“For every dollar that a Californian sends as a charitable contribution to California, you can write that off,” De León said in an interview with CNN Wednesday. “It’s legal. It’s legitimate.”

De León, who announced his intent to write a bill last month, argued that the GOP tax plan disproportionately hurts California. Under the federal measure, residents can deduct $10,000 paid in state and local taxes from their federal taxes. The effects of the new cap would be deeply felt in many suburban areas of California where people typically pay more than that to the state and local governments. Through De León’s plan, the first $10,000 would be paid via regular taxes and people would have the option of making a charitable contribution to the state for the remainder.

This process, De León said, is already used in other states such as Arizona and Florida, so the president may not want to challenge California’s maneuver in court.

“It will put him in a conundrum,” De León told CNN.

[spanel]

Maybe I'm missing something here???

1. Donations to a state are only deductible if the gift is solely for public purposes.
2. You are directly your "gift" to pay off your debt?
3. If they are accepting gift to a public purpose in lieu of paying your taxes, how are they getting theirs?
4. How would this not be cancellation of debt income?
5. How would this NOT be a benefit to you because of the donation, in therefor nixing the deduction in the first place?


Chris

[Twin Turbo Z]

Thats a work around. I for one could care less, bunch of whiny people out there. Just joking !!! Dont want to hurt anyone's feeling. But, that is a work around if it flies. Here in my state, not too many people have properties that generate that much property tax. And if they did then they can afford to take a hit on their tax return. Someone has to pay more ! Might as well be the rich, am I right ? Ok let me have it !!

[kathyc2]

5. How would this NOT be a benefit to you because of the donation, in therefor nixing the deduction in the first place?

Well, under current law a person receives a benefit of reducing tax by making a donation. Other than the percentage benefit, how would this be different?

I think we are going to be seeing a lot of creative ways and state law changes to get around this and many other things in TrumpTax. Tens of thousands of people are going to find ways to circumvent the intent, and it will take Congress years to keep rewriting law to circumvent. Simplification indeed!

[spanel]

Well, under current law a person receives a benefit of reducing tax by making a donation. Other than the percentage benefit, how would this be different?

I think we are going to be seeing a lot of creative ways and state law changes to get around this and many other things in TrumpTax. Tens of thousands of people are going to find ways to circumvent the intent, and it will take Congress years to keep rewriting law to circumvent. Simplification indeed!

The way this is different is that it wipes out dollar for dollar a debt that is owed & you are receiving a tax benefit on top of that.

That is way different than giving your church $1000 and receiving $150 benefit on your tax return.

Chris

[David1980]

State tax credits for charitable donations is not a new concept. It hasn't been $1 for $1 credit as far as I know (maybe some of the private school donation credits?) I think this might work, until / if congress closes it.

I'm not shocked in the least that states negatively impacted by the tax change are looking for ways to work within the law and keep federal tax benefits. Especially since they can make it look like they are fighting for their residents right now.

As far as tax simplification, I really think the new law mostly isn't. There's new tax games to play.

[Snaggletooth]

Just So I Understand

Let's see...

The $10,000 limit was placed on taxes, but there is no limit on contributions.

So all that has to be done is for states to pass a ruling that accepts contributions in lieu of taxes and then regards the tax liability to the state to be complete.

I don't see how the Feds can disallow this without new legislation, and I think the intent of such legislation would be so controversial that congress will not go down this road. Already some politicians in these high-tax states that voted against Trump have been making accusations that he is only targeting them as some sort of retribution for voting against him. Whether this is true or not, these accusations will convince many people. For the congress to raise this sort of legislation would create a situation that would be unwinnable.

For us as preparers, we must take the additional contributions as a deduction if we want to perform in the best interests of our clients.

[Snaggletooth]

Yes It is a Work Around

Absolutely correct, it is a workaround. I won't address the remaining tone of your message, in deference to those who view the issue from different perspectives.

[JohnH]

Thats a work around. I for one could care less, bunch of whiny people out there. Just joking !!! Dont want to hurt anyone's feeling. But, that is a work around if it flies. Here in my state, not too many people have properties that generate that much property tax. And if they did then they can afford to take a hit on their tax return. Someone has to pay more ! Might as well be the rich, am I right ? Ok let me have it !!

Whats your definition of rich?
or most of us, it is anyone who makes more money than I do or who can afford to buy more things than I can.

[Twin Turbo Z]

Whats your definition of rich?
or most of us, it is anyone who makes more money than I do or who can afford to buy more things than I can.

Your definition is a valid one. But my post was just a light hearted rant about this issue. We all know, any tax changes will effect certain individuals. Just glad the tax changes will help 99% of our clients. Well probably 100% of our clients !!

[David1980]

I would absolutely LOVE for my "tax" to become a voluntary contribution. (I will just decline to "donate.")
That would certainly leave those who did wish to contribute to their local tax coffers the ability to do so. (Cue the relevant PT Barnum quote.)
My annual cash flow would show a definite positive spike.

FE

The contribution could be voluntary without making tax voluntary. If you make the contribution you qualify for a state tax credit. But you are not forced to make the contribution, in which case you wouldn't receive the tax credit.

[JohnH]

I think the voluntary contribution would still be ineligible for deduction because the taxpayer received something of value in exchange for the contribution (a reduction of their state tax liability). But the posturing grabs great headlines for all the politicians who "wanna fight fer ya!")

[Rapid Robert]

I think the voluntary contribution would still be ineligible for deduction because the taxpayer received something of value in exchange for the contribution (a reduction of their state tax liability).

Not true. California has already set up something like this beginning in tax year 2014. It is called the College Access Tax Credit (CATC). It is a charitable donation for federal purposes, that yields 50% or more state income tax credit. I have heard of no challenges to this on the part of the IRS, and they've had plenty of time.

So if it's already been in effect for four tax years, why couldn't it simply be expanded to additional public-benefit funds? In fact, real conservatives (not the fake ones) should welcome this approach, as it allows taxpayers to pick and choose where they would prefer some of their tax dollars be spent, instead of leaving it entirely up to the legislature.

From the CA FTB web site: "You may also be able to claim a charitable deduction on your federal tax return. If you do this, you must add back the amount of the charitable deduction taken on your federal return as a state adjustment on your California tax return. "

[David1980]

Well, heck. I'm just gonna start deducting ALL of my federal and state taxes as "charitable deductions."

Sounds like a definite plan to me!

(Would consider a "casualty loss" to be much more representative, but that nagging 10% AGI floor might get in the way. . .)

FE

I think you're being intentionally obtuse. Obviously you can't deduct all your federal / state taxes as charitable contributions because the taxes are not optional. If you have an optional contribution and there's a tax benefit to making said optional contribution you can still deduct the optional contribution. That is different than deducting non-optional taxes.

Rapid Robert hit the nail on the head here. And the example of the College Access Tax Credit is a good one.

[JohnH]

It's going to be an interesting issue. The end result could be that all voluntary contributions which have been allowed in past years toward state income taxes could be disqualified, at least for open years. Or IRS/Congress might just roll over (although I doubt this). More than likely there will be additional clarifications, tap dancing around the issue, or perhaps dueling legislation.

I don't really have a dog in this fight, but it is definitely amusing.