In this Issue:
- Another Attempt to Preserve Maine Income Tax Charitable Deduction
- IRA Tax-Free Charitable Transfers Extended Permanently
- New Rules for 501(c)(4) Organizations
- E-Bulletin Information
Another Attempt to Preserve Maine Income Tax Charitable Deduction
Over the past few years the Maine Legislature has gone back and forth on how the Maine income tax treats charitable contributions. The latest state of play is that there is a $27,500 cap on all itemized deductions, including the charitable giving deduction and the mortgage interest deduction. This means that many Mainers, especially homeowners, can no longer claim the full amount of their charitable deductions on their Maine tax returns. Nonprofits statewide, with the assistance of the Maine Association of Nonprofits (MANP), are urging the Legislature to return to the previous legislative regime in which itemized deductions claimed on one’s federal return (including charitable deductions and the mortgage interest deduction) flow through completely to the Maine return.
A bill has been introduced in the current legislative session to accomplish this change. See L.D. 1519, An Act to Amend the Tax Laws To Strengthen Charitable Institutions, Encourage Home Ownership and Manage Medical Expenses. I recommend getting in touch with MANP if you would like to be part of the effort to support passage of this bill.
IRA Tax-Free Charitable Transfers Extended Permanently
Some good news for charities with older donors – which includes just about every Maine charity. As part of a year-end tax bill, Congress and President Obama agreed to permanently extend the tax-free treatment of Individual Retirement Account distributions to 501(c)(3) charities for individuals age 70 ½ and older. There is an annual cap of $100,000 per taxpayer, and both Roth and traditional IRA’s are covered by this rule. As in past years, this tax benefit was set to expire for distributions taken in 2015 or later, but instead of extending it for another year or two, as it has done for the past decade or so, the bill makes the rule permanent.
New Rules for 501(c)(4) Organizations
Congress also enacted new rules for 501(c)(4) organizations as part of the same year-end tax bill. Section 501(c)(4) encompasses a broad category of tax-exempt organizations that typically conduct significant political activities and therefore do not qualify as 501(c)(3) charities. Occasionally a 501(c)(3) organization will set up an affiliated 501(c)(4) organization to advance political goals, and these new rules should be noted in those circumstances.
Until now, 501(c)(4) organizations could fly under the radar by “self-declaring” and not filing any application of tax-exempt status with the IRS. Under the new law, a 501(c)(4) must file a notice with the IRS within 60 days of its formation. Existing 501(c)(4) organizations that had not filed a Form 1024 or Form 990 series return on or before December 18, 2015 (the bill’s date of enactment) must provide the notice required by June 15, 2016. However, the IRS is still working on creating the new notice form and so an extension of these deadlines is likely. For more information and updates on the form’s availability, check here.
Finally, the new law clarifies that gift taxes do not apply to contributions to 501(c)(4), (c)(5), and (c)(6) organizations. The IRS had never collected gift taxes on such contributions but had made noises about doing so, and some donors were getting nervous. The law now provides greater certainty to donors to such organizations.
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