How do you adjust the amount of charitable contributions when a taxpayer received a state tax credit for the contribution

[Richard C]

The IRS released Treasury Decision 9864 for which the amount of charitable contribution claimed by a taxpayer has to be reduced in most situations by any state income tax credits received for the contribution.  How should we report this adjustment on schedule A?

[IRonMaN]

Subtract the credit from the total the client gives you and enter that amount on schedule A?

[Richard C · Accepted solution]

Okay, I looked at two options, doing it as one amount, or doing it against the donation form that organization.  No guidance form the IRS on this, and if I did not just happen to come across an article from a law firm, I would not have know about having to make this adjustment.

[joshuabarksatlcs]

1.  Okay, I looked at two options, doing it as one amount, or doing it against the donation form that organization. 

2.  No guidance form the IRS on this,

3.  and if I did not just happen to come across an article from a law firm, I would not have know about having to make this adjustment.

1.  I interpret you were referring to the approach of either (1) report the net amount for that donation, or (b) report the gross and add a line with a negative amount to offset.  I think either way would work.  If the amount was significant, or if the client cares (or reads his/her copy with a magnifying glass) , I would consider (b).

2.  If there is guidance from the IRS on everything, @IRonMaN would not have any time for putting jokes in this forum for me.

3.  It is sort of a basic concept that deductions should be net of (i) thingies received in return (from cash donations that come with a meal or a Mel Torme CD, to complex computations for a CRUT....); or (ii) tax or other credits (e.g. research and development expenses used for R&D tax credit; depreciation basis for your pre-2021 Tesla..., computation of qualified education expenses used for the Education credit...) to name a few.  But then, you can always keep reading articles from law firms...

[qbteachmt]

IRS Resource:

https://www.irs.gov/newsroom/final-regulations-on-charitable-contributions-and-state-and-local-tax-c...

And:

https://www.journalofaccountancy.com/news/2020/aug/irs-regs-payments-to-charitable-organizations-in-...

[BobKamman]

Don't enter it as a contribution in the first place.  But enter it as "other taxes," if you're not already up to the $10K limit.  But make sure you do that for the right year, if it's one of those credits that applies to "donations" by April 18.  If you don't deduct it as a tax, make sure that adjustment is not made automatically on the state form (for example, way down at the bottom of AZ Form 321 is a place to indicate whether the amount was claimed as an itemized deduction). 

In Arizona, you can donate to a parochial school; a public school's "extracurricular activities;" or to a charity that helps local "working poor," and reduce your state tax dollar for dollar up to certain limits.  You don't gain anything, you just redirect your money.  I have started telling clients this is part of "Defund the Police."  They hate paying state income tax, but don't realize that much of the funds are shared with the cities that pay first responders.