Archive for category: Taxes

by Kami Pomerantz

On June 23, 2021, Governor Polis signed Colorado House Bill 21-1311 into law. The Bill makes significant changes to a number of Colorado state income tax laws. One change of note is an amendment to C.R.S. § 39-22-104. The amendment limits the amount of itemized deductions under Section 63(d) of the Internal Revenue Code that a high-income taxpayer may claim for Colorado state income tax purposes. The law is effective for tax years beginning on January 1, 2022. The limit applies to taxpayers who have a federal adjusted gross income of $400,000 or more in the tax year. For a taxpayer who files a single return, the taxpayer’s itemized deductions are capped at $30,000 for state income tax purposes. For taxpayers who file a joint return, the taxpayers’ itemized deductions are capped at $60,000. This limitation does not apply to taxpayers who take the standard deduction for federal income tax purposes. Read more

by Kami Pomerantz

The Child Care Contribution Tax Credit (the “CCTC”) provides a valuable tax credit against a taxpayer’s Colorado state income tax.  The credit equals 50% of the amount of a contribution made to a qualifying Colorado charitable organization that promotes child-care.  At the end of August, the IRS issued proposed regulations amending Treas. Reg. Section 1.170A-1.  The proposed regulations would limit the deductibility for federal purposes of charitable donations that qualify for a state or local tax credit like the CCTC.  While at a glance the proposed regulations seem to have a negative impact, in reality, for most taxpayers who itemize their federal deductions, the CCTC will remain an effective way to make charitable contributions at a substantially reduced net cost.

The CCTC applies to contributions of cash, (contributions of stock do not qualify) to Colorado institutions that support child care for children under 12 and to certain approved charities.  Under prior law, these contributions were deductible as charitable contributions for federal and state income tax purposes.  In addition, a taxpayer could credit 50% of the contribution against the taxpayer’s Colorado state income tax liability.  These deductions and credits substantially reduced the after -tax cost of such donations to taxpayers.  A taxpayer in the 35% federal tax bracket and subject to the 4.63% Colorado state income tax rate could make a charitable contribution of $30,000 for a net out of pocket cost of $8,847.