2018 K-1s are going out to all our SPE members. We started mailing K-1s last week and should be done by this week. Many donors have asked about the federal deduction which has previously been a 100% deduction with a 90% reduction in state and local tax deduction because less was paid in state taxes or a taxable Pennsylvania refund was received.
The new IRS regulations are not final but with a new law limiting state and local taxes to $10,000 annually it is unwise for a donor with more than $10,000 in state and local tax deductions to take a full 100% donation deduction on donations after 8-28-18 due to the temporary regulations and how the regulations highlight circumventing the $10,000 state and local tax deduction limit as being a problem. Taxpayers in this situation should alter their K-1 reporting to account for the IRS guidance provided.
Because the 2019 1099-G will reflect refunds of Pennsylvania taxes as automatically taxable if you only take a 10% donation deduction you need to declare any Pennsylvania refund as non taxable in the 2019 tax year because of your decision to reduce your 2018 donation deduction.
Many donors will not be impacted as the new standard deduction is much higher or corporate donors are not impacted by the $10,000 individual state and local tax deduction limitation.
We hope individual donors can navigate a common sense way to deduct the 10% net federal donation deduction they are entitled to and not report excess income from 1099-G tax documents under the current temporary guidance provided by the IRS which is not official until finalized. Hopefully the final regulations will be clearer than the conflicting information contained below in the links to IRS pronouncements.
The 90% Pennsylvania tax credit remains unchanged and is a great reason to redirect your state taxes to scholarships locally to support local families.
If your tax accountant or you wish to do further independent research into the current temporary regulations or other recent IRS pronouncements here are links to the most current guidance as of the date of this post:
2010 IRS chief counsel memorandum
IRS Notice 2018-54
2018 temporary regulations
2018 Business Donation Clarifications
2019 Revenue Procedure 2019-12
Each SPE member is strongly advised to consult their tax advisor for the advice applicable to their specific circumstances. This article does not constitute tax advice.
The new IRS regulations are not final but with a new law limiting state and local taxes to $10,000 annually it is unwise for a donor with more than $10,000 in state and local tax deductions to take a full 100% donation deduction on donations after 8-28-18 due to the temporary regulations and how the regulations highlight circumventing the $10,000 state and local tax deduction limit as being a problem. Taxpayers in this situation should alter their K-1 reporting to account for the IRS guidance provided.
Because the 2019 1099-G will reflect refunds of Pennsylvania taxes as automatically taxable if you only take a 10% donation deduction you need to declare any Pennsylvania refund as non taxable in the 2019 tax year because of your decision to reduce your 2018 donation deduction.
Many donors will not be impacted as the new standard deduction is much higher or corporate donors are not impacted by the $10,000 individual state and local tax deduction limitation.
We hope individual donors can navigate a common sense way to deduct the 10% net federal donation deduction they are entitled to and not report excess income from 1099-G tax documents under the current temporary guidance provided by the IRS which is not official until finalized. Hopefully the final regulations will be clearer than the conflicting information contained below in the links to IRS pronouncements.
The 90% Pennsylvania tax credit remains unchanged and is a great reason to redirect your state taxes to scholarships locally to support local families.
If your tax accountant or you wish to do further independent research into the current temporary regulations or other recent IRS pronouncements here are links to the most current guidance as of the date of this post:
2010 IRS chief counsel memorandum
IRS Notice 2018-54
2018 temporary regulations
2018 Business Donation Clarifications
2019 Revenue Procedure 2019-12
Each SPE member is strongly advised to consult their tax advisor for the advice applicable to their specific circumstances. This article does not constitute tax advice.
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