Bay Area Estate And Tax Planning Law Firm

Because a mind – and a tax break – is a terrible thing to waste p3

On Behalf of | Nov 1, 2014 | Uncategorized |

This is the time of year that many people start thinking about their taxes. There is time left in 2014 to reduce a tax bill, and there are a number of ways to do that. For those among us who have a little extra cash, it may be time to think about donating to a charity.

A new California law rewards taxpayers for donations to the Cal Grant B program. The program helps low-income college students offset some of the costs of pursuing their education. The state has found a way to grow the fund so that more students have money for housing and books while at the same time offering a tax break for those donations.

In our last post, we discussed one route a taxpayer may choose: a tax credit. The tax credit will take a dollar-for-dollar amount off the top of the filer’s state income tax obligation. (See our Oct. 27 post for more details.)

The alternative is something most taxpayers are familiar with: a tax deduction. A tax deduction lowers the filer’s income for tax purposes.

So, Bob makes a $200 charitable donation to the Cal B Program. Without the deduction, the state (and the IRS) base his tax bill on his $100,000 income. With the deduction, that income drops to $99,800. If the calculation puts Bob in a new tax bracket, his tax bill will be a lot lower.

It is important to remember that the state of California will not allow Bob to take both the tax credit and the charitable deduction for that $200 donation. He may still report the deduction on his federal taxes.

The difference between the two tax returns and the difference between the tax credit and the charitable deduction may be more than a taxpayer really wants to think about. If you have questions or are uncertain about anything we have discussed in this series of posts, you should consider consulting with a tax attorney.

Source: SFGate, “Huge tax break for donating to California college students,” Kathleen Pender, Oct. 3, 2014

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