Starting on January 1, 2023, Massachusetts taxpayers can now deduct charitable contributions on their state tax return, regardless of whether they itemize deductions on their federal return.
Charitable contributions must meet Internal Revenue Code Section 170 requirements to qualify for the deduction. This includes donations made to qualifying nonprofits in and outside of MA.
The new MA state charitable deduction is a welcome change for many taxpayers, especially those who cannot itemize deductions on their federal returns. The deduction provides an incentive to give to charity and reduces state income tax liability. It may also be a valuable planning tool for taxpayers who are subject to the new ‘Massachusetts Millionaire’s Tax,’ an extra 4% state income tax on earnings over $1 million annually (This tax can apply to taxpayers with one-time income events, such as selling property or homes, as well as those with high annual incomes.).
Here are some key things to keep in mind about the new charitable deduction:
- The charitable deduction applies to MA state tax filings.
- As stated above, the deduction is in effect for MA taxable years beginning on or after January 1, 2023, and must meet Internal Revenue Code Section 170.
- The deduction is taken against Massachusetts Part B adjusted gross income.
- If you plan on taking this deduction, please retain documentation and receipts of your donations.
If you are considering taking this deduction, speaking with your tax advisor is essential, as there may be ways to maximize your charitable giving tax strategy.
“We are happy to see that Massachusetts is acknowledging the importance of charitable giving by making their tax code more friendly for those who are charitably inclined,” said LGA Principal Joe O’Malley, CPA. “However, for federal purposes, we always remind individuals to consider ‘front-loading’ or making charitable contributions in one year so that their charitable deduction far exceeds the high standard deduction and ensure they receive a tax benefit for their charitable giving. Obviously, consult a tax advisor before taking this step as other factors would come into play.”
If you have any questions on this deduction, please get in touch with your LGA tax advisor or contact us below.
Article Written by Ben Atkinson
Ben Atkinson is a Sophomore at Babson College where he studies business and entrepreneurship. He spent his 2023 summer as an LGA marketing intern, helping the firm with marketing and growth initiatives. In his spare time, Ben enjoys playing and teaching tennis.