Dear Clients & Friends,
Before we get into this Weekend Reading, let us acknowledge our excitement about the upcoming long weekend. While we enjoy Memorial Day, let us not forget the purpose of our day off: to remember, honor, and celebrate those that have lost their lives while serving in our armed forces in order to “…insure domestic Tranquility, provide for the common defense, promote the general Welfare, and secure the Blessings of Liberty to ourselves and our Posterity…” (quoted from the preamble to our Constitution).
We have a lot of veterans in our family of clientele. We at MORWM salute you, as well as all of the others who have loved and lost family members and friends in service to our nation.
Let us also try to stay safe on the roads this weekend. According to the National Highway Traffic Safety Administration (NHTSA), there are four times as many car crashes on Memorial Day weekend than on any other holiday. Thirty-seven percent of fatal crashes during Memorial Day weekend involve a drunk driver.
So, while we derive comfort from knowing how much time we all spend together on legacy planning, let’s not enact such plans this weekend. 😉 Stay diligent on the road. Stay safe.
Now, onto our topic for this weekend.
It has come to our attention that many of our clients who reside in Massachusetts are unaware that they may be eligible for state-level charitable tax deductions. (Although this Weekend Reading may not be relevant to residents of other states, I encourage everyone to read this because other states have already made this change or may be considering adopting new laws in the future.)
In the past, a Massachusetts resident could not claim a charitable tax deduction unless the deduction was stated on their federal tax return. Since tax savings is not the primary motivating factor for charitable gifts made by our clients, folks have continued making contributions regardless of what they put on their tax return. However, last year, this law was changed. Now, clients living in Massachusetts (and some other states) can still claim a deduction even if they do not itemize their federal tax return. This is a massive change. MA tax rates are high, and our clients give a LOT of money to charity.
You might be asking, “How is it possible that clients of a firm like MOR Wealth Management would not itemize their tax return?” Simple: consider a retiree at age 60, without any debt, who holds a large portion of their wealth in qualified retirement accounts (many millions, in some cases). This individual likely makes very little income. They are retired, not yet receiving Social Security, they may not have a pension, etc. Their only income is that which is produced through their investments. With savvy investment-related tax management courtesy of your financial gurus at MORWM, , these clients often fall into the lowest tax bracket - thus warranting a standard deduction.
According to MA regulation 830 CMR 62.3.2: “Taxpayers are not required to claim a federal charitable contribution deduction in order to claim a Massachusetts charitable contribution deduction.” (This is quoted right from the regulation itself.)
Here are the important parts of the ruling:
(3) General Rule
M.G.L. c. 62, § 3(B)(a)(13) allows a personal income tax deduction for charitable contributions based on the federal charitable contribution deduction allowed or allowable under Code § 170, including any carryover allowed therein, as modified by 830 CMR 62.3.2(4). Taxpayers are not required to claim a federal charitable contribution deduction in order to claim a Massachusetts charitable contribution deduction. The Massachusetts charitable contribution deduction is generally available only for contributions made in taxable years beginning on or after January 1, 2023. However, any amounts attributable to charitable contributions made prior to January 1, 2023 and carried over to tax years beginning on or after January 1, 2023 on the taxpayer’s federal income tax return are includable in calculating the Massachusetts charitable contribution deduction.
(4) Charitable Contribution Deduction Calculation
(a) To be deductible, a charitable contribution must be made on or after January 1, 2023 and meet all the requirements, conditions, and limitations for deducting charitable contributions under Code § 170 as amended and in effect as specified in M.G.L. c. 62, §1(c), with the following exceptions:
Taxpayers are not required to itemize deductions on their federal income tax return.
No Massachusetts deduction is allowed for contributions of household goods or used clothing, within the meaning of Code § 170(f)(16).
(b) A taxpayer that itemized deductions and claimed the charitable contribution deduction on their federal return should use as their starting figure in calculating the Massachusetts deduction the amount reported for federal purposes representing contributions to charity. A taxpayer that did not itemize deductions or claim a charitable contribution deduction on their federal return should use as their starting figure the amount they would have reported for federal purposes representing contributions to charity had they itemized and claimed a charitable contribution deduction on their federal return. In either case, such amount, including any federal carryover amount, must then be reduced and/or adjusted by the modifications discussed in 830 CMR 62.3.2(4)(a).
(5) Taxable Years in Which a Deduction May Be Claimed
Commencing with taxable year 2023, charitable contributions may be deducted in any succeeding taxable year for which the rate of tax on Part B taxable income in the prior taxable year was equal to 5 percent.
“This long-awaited implementation fulfills the will of Massachusetts voters and shows a renewed commitment to honoring voter mandates and supporting philanthropic endeavors. However, it's important to note that Massachusetts law differs from federal rules regarding charitable deductions. Contributions of household goods or used clothing are not eligible for the state deduction. Additionally, the deduction applies specifically to reducing Part B adjusted gross income, such as wages, and does not extend to reducing income from capital gains, dividends, or interest, except for interest from Massachusetts banks.” *Forbes Dec 19, 2023
I personally think that most clients are already aware of these changes, largely because we’ve been yelling about it for months. But for those that are not, please give us a call. Let’s set up a meeting with your CPA. And if anyone is unsure about their own state’s regulations (not MA), give us a shout.
Have a lovely and SAFE Memorial Day weekend.
-Your team at MORWM
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