Tax Credits for Donations to Medical Research
While many States are offering tax credits for donations to Medical Research, they must be counted as deductions for charitable contributions on Federal tax returns.
Tax Credits for Donations to Medical Research
The fact that a business might receive a tax credit for money devoted to research and development under programs designed to encourage R&D for its potential economic impact makes it seem logical that donations by individuals would qualify for credits as well. The fact is that several States have programs that give direct tax credits for individual donations to qualified Medical Research programs.
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A tax credit has a major advantage over a tax deduction. The tax credit comes directly off the amount of tax owed. Therefore, it is not subject to any modification based on income or tax rate. If you have a tax credit of $1000, you are going to owe $1000 less tax regardless of your income. If you have a tax deduction of $1000, your actual savings is going to be $1000 times whatever your tax rate is based on your gross adjusted income. The more money you earn, the higher your tax rate and the more your deduction will save you in tax actually owed.
So, the question could be asked why States are giving tax credits for donations to Medical Research and the Federal tax codes are considering them only as deductions under the heading of charitable deductions. The answer has more to do with the nature of politics in a representative democracy like the United States than with tax codes. Some of the time, a good idea takes a little bit of time getting from the State level to become the law of the whole land.
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Tax credits are often used to encourage activities that benefit the country as a whole. Medical Research would certainly seem to fit into that definition. However, the budget demands of the country and the need to get a majority of the Federal Government to accept this idea makes it a slow and time consuming process to get a law enacted to change the tax code.
Deductions for charitable contributions may not result in as much tax savings as a direct tax credit, but they still can reduce the tax liability of a taxpayer who is itemizing their deductions. Also, the taxpayer should examine the tax codes of their own State to see if credits are available on State income tax. If a credit is taken on State Tax, it is important to remember that this fact impacts the ability to claim the donation as a deduction on your Federal itemized return.