Businesses that donate to charitable funds in exchange for a state tax credit can deduct those costs from their federal taxes, according to regulations released on Friday.
The Internal Revenue Service guidance, which finalized a proposal from December, addresses confusion to how the donations are treated, following changes to how the IRS treats tax benefits from donating to state charitable funds.
The regulations also provide a safe harbor for some individuals who donate to these charitable funds for a tax credit.
The regulations are a response to new state charitable funds that sprung up following the 2017 tax law, which capped the annual state and local tax, or SALT, deduction on federal tax returns at $10,000.
The SALT cap was one of the most politically contentious changes in the Republican tax overhaul. Removing the cap on SALT deductions is among the things Democrats have said they’re are pursuing in negotiations with Republicans for an upcoming stimulus bill. Talks stalled Friday after the two sides failed to reach agreement about the overall cost of a deal.
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