TAXPAYERS TO PROFIT FROM GENEROSITY
FOR FIRST TIME EVER, BAY STATE RESIDENTS CAN DEDUCT
CHARITABLE CONTRIBUTIONS MASS. TAXPAYERS TO PROFIT
By Dolores Kong
The Boston Globe
When economist David Tuerck gave $1,000 to charity
last year, despite having purchased a new house, he
had in the back of his mind a new Massachusetts tax
break for charitable giving.
"It was an added bonus," said Tuerck, executive
director of the Beacon Hill Institute at Suffolk
University, who has studied the expected impact of the
new charitable tax deduction in the state.
Combined with an existing federal tax break for
charitable contributions, he said, "it only cost me 66
cents on the dollar."
As millions of Massachusetts taxpayers file their 2001
state returns, some will discover they will be able to
deduct charitable contributions for the first time
ever, while others will get an extra tax break on top
of the one they already get at the federal level. For
the current filing year, that could add up to as much
as $137.2 million more in Massachusetts taxpayers'
pockets. That's 5.6 percent (the tax savings of the
new deduction) of the approximately $2.45 billion
Massachusetts residents claim as charitable
contributions on their federal tax returns each year,
according to the Internal Revenue Service.
But the new tax deduction's days may be numbered.
Despite the fact that 72 percent of voters approved
the measure on the November 2000 ballot, there is
already movement afoot at the State House to repeal
With economic uncertainty bringing state tax revenues
down, State Representative John Rogers, chairman of
the House Ways and Means Committee, last month
introduced a proposal to do away with the charitable
tax deduction, saying it's more a tax write-off for
corporations making out-of-state donations than a
benefit to individual taxpayers or people in need of
"It's corporate welfare dressed up in charity's
clothing," said the Norwood Democrat in a statement
last week. "This year, we'll be forced to cut $200
million in human services to the neediest of our
citizens so that big corporations can make
questionable donations to out-of-state charities. It's
backward tax policy in dire need of speedy repeal."
Regardless of the State House debate, for certain
individual Massachusetts taxpayers, the new deduction
is a nice surprise this tax filing season. That's
because the new charitable tax deduction is available
to all taxpayers, not just to those who itemize their
deductions, as is the case at the federal level. As a
result, more low- and moderate-income residents - who
may not have mortgage interest or other expenses worth
itemizing - will get a tax break for their charitable
donations for the first time.
"It's going to be a really big deal for our taxpayers
- low- income taxpayers," said Rick Siegrist,
co-president of Community Tax Aid of Boston, a
nonprofit organization that provides free tax
preparation. "It's a question we ask everybody as we
go through the checklist, to make sure we prepare
At a community site in Dorchester a few weeks ago,
most of the 10 people whose taxes were prepared that
night by Community Tax Aid got the charitable
deduction, Siegrist said. "I'm very pleased."
Community Tax Aid expects to provide free tax
preparation services to about 1,500 people this year
at 14 sites, primarily at community schools and health
centers in such neighborhoods as South Boston, East
Boston, Dorchester, and Hyde Park.
For a taxpayer who donates $500 to charity, the
Massachusetts tax savings would be $28, based on the
5.6 percent tax rate in 2001. If the taxpayer also
itemizes deductions on her federal tax return on
Schedule A, the federal tax savings would be $137.50
(for the 27.5 percent federal marginal tax bracket in
Combining the state and federal tax breaks, the
savings on that $500 charitable contribution would be
$165.50. In other words, it cost the taxpayer only
$334.50 to donate $500, or 66.9 cents on the dollar.
The cost of giving decreases even more for taxpayers
in the highest federal marginal tax bracket of 39.1
percent in 2001. Combined with the state deduction,
the total tax savings would be 44.7 percent. In other
words, it would cost those taxpayers only 55.3 cents
on the dollar to give.
But Eugene S. Tarsky, a Norwood certified public
accountant and a member of the public relations
committee of the Massachusetts Society of CPAs, said
the additional 5.6 percent state tax break hasn't been
a big issue for his clients, who tend to itemize
deductions and get a heftier break on federal taxes
for giving to charity.
"It can make some difference, but it's certainly not
going to have the impact it's going to have on the
federal return," said Tarsky. But for people making
$20,000 to $30,000 a year who may not have itemized
but may have given $500 to a church or some other
nonprofit, the state tax break can help, he said.
Both state and federal tax breaks limit the deduction
to various percentages of your adjusted gross income,
depending on the type of property donated. There's a
maximum charitable tax deduction of 50 percent of
adjusted gross income for the year, but excess
deductions can be carried over to subsequent years.
Tuerck, the economist, said studies have shown that a
charitable deduction helps boost giving, which in turn
helps offset lost tax revenues that otherwise might
have been allocated to provide social services,
environmental protection, and other services
charitable institutions provide.
For example, the institute found in a 2000 study that
the Massachusetts charitable tax break could increase
giving in 2001 by $279 million, while the state would
lose $198 million in tax revenues. The study projects
the increase in charitable giving to grow over time,
as word about the state tax break gets out.
While the study's numbers were developed before the
current economic downturn and loss in tax revenues,
the charitable tax break is a "far more effective way
of accomplishing the goals of government," said
Tuerck. "Additional giving would be more. More goes to
where it's supposed to go."
As discussions of repeal heat up, nonprofit officials
are already rallying in opposition, including Paul S.
Grogan, president and chief executive of the Boston
Foundation; George McCully, project director of the
Massachusetts Catalogue for Philanthropy; and Ron
Ancrum, president of Associated Grant Makers.
The ballot initiative grew out of organized
philanthropy's concern that Massachusetts has
consistently ranked near the bottom of a "Generosity
Index" that McCully helped devise. Supporters of the
ballot question hoped to boost giving in the
Commonwealth while giving taxpayers a break.
"Massachusetts has been at the bottom of the list for
individual philanthropy for way too long, and this is
an important step in the right direction," said Bruce
Berman, a spokesman for Save the Harbor/ Save the Bay,
an environmental protection agency that has already
started mentioning the new charitable deduction in its
telephone appeal, and has seen an increase in requests
for receipts for tax purposes.
To claim the new charitable deduction on the
Massachusetts tax return, use Schedule Y, line 9,
listing gifts by cash or check separately from
non-cash contributions such as clothing or books.
As is the case with taxpayers who claim the federal
charitable deduction on Schedule A, Lines 15 or 16,
people who claim the Massachusetts tax break need to
keep written records of their contributions, in forms
such as a receipt or canceled check.
If the gift is property, you should also keep
"reliable written records" of how you figured its fair
market value at the time you gave it and any
conditions you may have attached to the gift, among
other requirements, according to the IRS.
Tuerck, who liked the added bonus of the deduction for
his $1,000 gift last year, is sure other taxpayers
will feel the same way.
"Economists are always reluctant to psychoanalyze,"
Tuerck said. But people who give, and who get
additional tax savings, might say, " `Lucky me. A new
deduction.' That might pretty well encourage people to