Important Update for 2021 Tax Planning - Charitable Contributions in MA

William Delaney, EA
Westwood, MA

In 2002, responding to a ballot initiative, the MA legislature included a provision in HR5250 (Chapter 186, Acts of 2002) which phased-in a gradual reduction in the personal income tax rate.  As we all know, the new rate for 2020 will be 5%.  This is because of the ballot initiative enacted into state tax law many years ago.

At the same time, Section 9 of the Act removed the deduction for charitable contributions but provided that it would eventually be restored (“…no such deduction shall be allowed in any taxable year unless the rate of tax on Part B taxable income in section 4 in the prior taxable year was equal to 5 per cent;).  So, by inserting this back-door approach, the state deduction for charitable contributions has now been restored, effective with tax year 2021 (tax rate in prior year [2020] was equal to 5%).

There are two notable deviations from what is allowed under IRC Sec. 170.  MA will NOT allow a deduction for contributions of “…household goods or used clothing…”
Second, and by far the most important to us, “…for purposes of determining the amount of the deduction under this subparagraph…taxpayers shall not be required to itemize their deductions in their federal income tax returns.”

So, we will be back to obtaining a list of charitable contributions going forward, even though our taxpayers take the federal standard deduction.  If your memory goes back to 2001, you will remember that we had this deduction for a single year and there were quite a few state correspondence audits.  A word to the wise---documentation and proofs are essential.