If you're thinking of making a gift to charity, you'll be smart to do so before Jan. 1.
That's when the Michigan tax credits for charitable gifts disappear, taking the 50 percent tax credit for donors with it.
The Michigan tax credits for charitable gifts, in place since 1967, will expire at the end of the year, eliminating a 50 percent tax credit for taxpayers who donate to a qualifying Michigan public institution (libraries, colleges, museums, public broadcasting stations); endowment funds of certain community foundations; and homeless shelters and food banks. Taxpayers can claim a credit for charitable gifts made to each of the three types of charities.
In 2010, these credits helped to raise nearly $100 million for Michigan charities, reducing the taxes of Michigan taxpayers by $50 million with credits on their tax returns.
For an individual filing separately, the credit is limited to $100 on a gift of $200 or more; and for a married couple filing jointly, $200 on a gift of $400 or more.
For taxable trusts and estates as well as some businesses, the credit can be as much as $5,000 on a gift of $10,000 or more.
Jo Mathis talked to Robin Ferriby, vice president of philanthropic services for the Community Foundation for Southeast Michigan, which since 1984 has distributed more than $462 million through more than 38,000 grants to charitable projects in southeast Michigan.
MATHIS: Why is the credit going away?
FERRIBY: It's part of the Michigan budget wherein all credits were eliminated. This wasn't a targeted repeal of the charitable tax credits. But, rather it was part of a policy decision to get rid of all credits in the state.
MATHIS: Why is the Community Foundation for Southeast Michigan urging taxpayers to take advantage of these credits for gifts to Michigan charities by the end of the year?
FERRIBY: There are a lot of significant charitable needs in southeast Michigan and throughout the state of Michigan. And what these tax credits do is give an incentive for individuals to support charitable causes that benefit their fellow citizens in the state. We want to make sure they're aware of this before those credits expire.
MATHIS: How will this change affect the Community Foundation?
FERRIBY: It affects the Community Foundation because we do get tax credit gifts into our endowment funds here from a broad group of individuals. It's been a good incentive for having broad engagement with the Community Foundation. We're disappointed that we'll lose that incentive for broad engagement. But what we're more concerned about right now is that the credits have a significant financial impact for other charities in the region, and we want to make sure people are aware of them so they can support those charitable causes.
MATHIS: Any charities you're most concerned about?
FERRIBY: The three types of charities that people could claim to get a charitable tax credit are homeless shelters and food banks and the need there is obvious right now; public institutions which include our universities, public radio and TV, libraries, and museums -- all things that help educate our populace that's important at this time of needed economic growth; and the endowment funds at community foundations, which are funds that help support non-profits on an ongoing basis, both in good times and in bad.
There are distinct needs in each of those categories, and we want to make sure that people are aware of that opportunity and take advantage of it.
MATHIS: Do you think people will stop giving because of the loss of those credits?
FERRIBY: Michigan residents are very generous people, as are most people in the United States. About 90 percent of the people give to charity on an annual basis. And I think that individuals and businesses still care about this community, and they will give after these credits go by. But tax policies affect the amount that people give. So I think that people will still continue to give, but the concern is that they won't give as much because without the credit, the cost of their giving goes up.
These credits expire on Dec. 31, but the charitable needs don't.
MATHIS: How is the credit better than a tax deduction?
FERRIBY: Deductions reduce your taxable income to which your tax rate is then applied. Whereas a credit reduces your actual tax liability. So a credit is a direct reduction in your tax liability.
MATHIS: So those whose incomes are so low they don't pay taxes wouldn't be affected?
FERRIBY: If you have zero Michigan tax liability, the state will not send you a check back for making a charitable gift. But to the extent that you have any Michigan liability, you can use the credits to reduce that liability.
MATHIS: Do other states offer this type of credit?
FERRIBY: There are about three or four across the country, but that's about it. Some other states have charitable income tax deductions, not credits. But this has been a very important tool for people in the state of Michigan since the 1960s to support charitable causes that's unfortunately going away.
MATHIS: Do you think it will ever return?
FERRIBY: Only if there's a change in philosophy on the suitability of credits in general.
MATHIS: What else do you want people to know?
FERRIBY: This credit is available for individuals. But a lot of people don't know it's also available for taxable estates and trusts. Then there's a big credit that's also available for Michigan business taxpayers. And very few businesses claim the credit on an annual basis even though businesses do support charitable causes. I think it's because they just don't know the credit exists.
MATHIS: What's the most important thing for a tax attorney to share with a client?
FERRIBY: Ask your clients about their charitable giving. Less than 25 percent of estate planning attorneys talk with their clients about charitable giving when doing their estate planning, and yet 90 percent of their clients are making charitable gifts on an annual basis. It's something that's important to your clients, and therefore you should be interested in what your clients are doing.
For more information, go to www.cfsem.org
Published: Thu, Dec 1, 2011
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