Planned Giving in the news: WSJ Reports on NJ Taxing of IRA Charitable Rollover Gifts

I am feeling a bit like the grinch.

I totally missed this issue of New Jersey taxing IRA charitable rollover gifts for 4 years. Then I hear a top attorney mention it in passing, put it on my blog, a conversation with a nice WSJ reporter (thanks for the quote!)…. My guess is that there will be people paying taxes that might have just been overlooked – now that the Wall Street Journal reported on it.

Here is the WSJ story:

Just to understand this issue, a NJ accountant confirmed for me that NJ does not defined adjusted gross income (AGI) in the same way the IRS does (Most states do follow the IRS in this regard). And, yes, NJ requires you to add any IRA withdrawals (qualified IRA charitable rollovers or not) to your NJ AGI. NJ state income taxes range from the 5% to 6% for medium to semi-high income earners. 8% to over 10% to higher earners ($150,000 to $500,000 and up).

So we are talking about real dollars out of donor’s pockets. The one NJ charity I asked about this (who did promote it but carefully stated that it only avoided federal income tax) said they informed everyone and they had not problems.

I hope that’s true – now that the cat is out of the bag. What I mean is that this quirk in New Jersey’s tax law, which for all I know could be unique among the states, was relatively unknown. Maybe your accountant would have been aware of it but why would you need to tell him (all accountants are men, right?)? And, if there is not an automatic reporting mechanism from IRA custodians to NJ tax authorities (like there is to the IRS), how would anyone in the NJ taxing authority know to go after the tax if not voluntarily reported.

What I am getting at is that this quirk was ripe for everyone to ignore and not pay any state income tax on IRA charitable rollovers. If was an unknowing donor of such a gift, knowing that I get no new charitable deduction, I wouldn’t bother telling my accountant.

But now, me, the grinch, stirs up the pot, the WSJ picks up the story, and now accountants in NJ will be on the look out for these “gifts” to add them to your NJ AGI.

Or maybe not.

Happy holidays!

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