Arizona (with 86 Covid deaths reported today) is the only state that allows a deduction for state income taxes. Think about that. The deaths and the deductions – both signs of idiot politicians. But IRS Notice 2019-12 makes it clear that the payments to schools or charities cannot be deducted as contributions, and should be deducted as taxes, subject to the $10K limit. End of story.

But what to do on the state return? Now we have this new “let’s complicate, not simplify” deduction for 25% of charitable contributions, for those who don’t itemize. Give $5,000 to the church, and maybe save $50 in state tax. Do the contributions that count for credits, qualify for that deduction? They shouldn’t, but who’s checking? The Department of Revenue laid off most of its auditors in 2016, only to hire back 25 of them in 2018 when they figured out it cost them $83 million. The income tax audit program relies almost entirely on comparing federal amounts, supplied by IRS, to amounts shown on state returns filed three and a half years earlier. (It always helps to wait until the statute is about to expire – people haven’t kept their records, and more interest can be collected.) But IRS doesn’t have numbers on charitable contributions, for non-itemizers. Nor do they have numbers on medical expenses for most people: the state allows all of them, with no 7.5% haircut.

So do what’s right, even if enforcement doesn’t exist.