Monday, July 5, 2010

States Looking to Reduce Charitable Contributions Deduction to Increase Revenue

As states continue to grapple with revenue shortfalls and other budgetary challenges, some are looking to reduce or cap individual taxpayers' deductions for charitable contributions.

Hawaii:  Governor Linda Lingle vetoed a tax bill on Thursday, July 1, 2010 that would have placed a temproary cap on individual taxpayers' itemized deductions for state income tax purposes until the year 2016.  Such a cap would have limited taxpayers' deductions for home mortgage interest, state taxes paid, unreimbursed job-related expenses, and charitable contributions.  The Governor specifically noted that tax-exempt organizations' concern that the proposed cap would have affected their ability to raise funds.  "It is a de facto tax increase that will adversely hurt certain individuals and businesses at a time when we should be encouraging investment and spending to recharge the economy," Lingle explained to Hawaii lawmakers in a separate letter.

New York:  As previously blogged, Governor David Paterson and the state legislature appear to have agreed on a budget proposal that would restrict the charitable contributions deduction of approximately 3,500 New York taxpayers with more than $10 million in annual earnings to only 25 percent of their charitable contributions rather than the current 50 percent. 


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