Giving to those in need is a priority for many Colorado residents to ensure that programs and causes close to their heart are well funded and supported.
These contributions often serve as a lifeline, keeping organizations operating and in business. Although tax benefits are rarely the reason individuals contribute, it’s important to understand how to take advantage of available programs. While most are aware that the federal government offers several tax programs, many are surprised to learn that the state of Colorado also offers several robust incentives for charitable giving. These programs include the Childcare Contribution Credit, Enterprise Zone Contributions, Charitable Contribution Subtraction and the Crop and Livestock Contribution Credit. To help clients, prospects and others understand the programs and their benefits, Hanson & Co. has provided a summary of each below.
Key Program Details
- Childcare Contribution Credit – Individual and corporate taxpayers that make a cash contribution to promote childcare in Colorado can claim a credit of 50% of the total contribution. Only cash contributions qualify for the credit, whereas items such as financial instruments (including stocks and in-kind gifts such as labor or equipment) do not qualify. The maximum credit that can be taken in a single year is $100,000, but the credit can be carried forward for up to five years. What makes this credit more appealing is that if a taxpayer itemizes deductions, the contribution can be used against federal income taxes as well.
- Enterprise Zone (EZ) Contributions – Colorado taxpayers are eligible to earn tax credits for contributions made to EZ Administrators. The rules governing this incentive mirror the federal guidelines for making qualifying charitable contributions. This means that both cash and non-cash donations qualify with some exceptions. It’s important to note that in order to qualify for the benefit, contributions must be made to an approved EZ Contribution Project, which includes dozens of projects in Denver, Adams, Jefferson, Larimer and Mesa Counties. (Click here for a full list of qualifying projects.)
- Charitable Contribution Subtraction – Any individual who claims the standard deduction on their federal return can take a subtraction on their Colorado return for a portion of the contributions made. Both cash and property contributions may qualify, but the contribution must be made to a qualified organization to be eligible. Qualifying organizations generally include religious organizations, including temples, churches, synagogues and mosques, nonprofit charitable organizations, nonprofit educational organizations and nonprofit hospitals and medical research organizations. The state benefit is determined by subtracting $500 from the total federal qualifying contributions made. For example, if a taxpayer made $2,000 in qualifying contributions, they would be able to claim $1,500 on their Colorado state return under this program. It’s important to note that any benefit above the current year tax liability cannot be carried forward.
- Crop and Livestock Contribution Credit – This credit is available to C-Corporations that donate crops or livestock to a charitable organization for use in Colorado. The credit is equal to 25% of the contribution valued at wholesale market or the most recent sale price. To qualify for the credit, the crop must be harvested or livestock slaughtered on behalf of the charitable organization and the crop or livestock use must be related to the organization’s purpose or function that constitutes its tax-exempt status. In addition, the crop or livestock is not transferable for cash or other compensation and the organization must provide a written statement about compliance with these conditions. The credit may not exceed $1,000 per year and can be carried forward for a period of five years.
These tax incentive programs for charitable giving are a compelling reward for Colorado residents who donate to certain causes, especially when combined with similar federal programs. If you have questions about the programs listed above or need assistance with tax planning, Hanson & Co. can help. For additional information call us at (303) 388-1010, or click here to contact us. We look forward to working with you soon.