Hyden, Miron & Foster, PLLC Law Blog

Monday, October 17, 2016

Are Political Donations Tax Deductible? In Arkansas, The Answer Is Yes!

During the first presidential debate between Democratic nominee Hillary Clinton and Republican nominee Donald Trump, taxes were a hot topic. Instead of just talking about tax policy, however, the candidates were also talking about Trump’s tax return, which he has refused to release.

Clinton alleged Trump is hiding the fact that he has been paying little, if any, taxes. Trump says he is keeping his returns private because he is being audited, but he seemed to confirm that he is not paying a lot to Uncle Sam. Trump said avoiding a hefty tax burden shows he’s “smart.”

Whether you agree or disagree with Trump on other issues, he’s correct that minimizing your tax burden is smart. The government has set up our tax laws to incentivize and disincentivize various activity, and people who follow the rules and act the way the government is encouraging them to deserve to reap the benefits.

Our firm helps a lot of clients make “smart” decisions that allow them to minimize their tax burden, and interestingly enough, getting involved with politics is one of the things we advise our tax clients to do. Arkansas is one of just four states (the others are Ohio, Oregon, and Virginia) that gives citizens a tax credit for donating to a political candidate.

Arkansas residents can get a $50 tax credit per taxpayer (so $100 for a couple filing a joint return) for cash contributions made by the taxpayer in a taxable year to one or more of the following:

1. A candidate seeking nomination or election to a public office or to the candidate’s campaign committee; or

2. An approved political action committee; or

3. An organized political party.

For the purposes of the credit, “Public Office” means any state or local office. Basically any state or local public office counts so long as the office is filled by a vote of the public and not filled by appointment or some other non-democratic means.

The credit does not apply to contributions made to candidates for federal office. In this sense, our state’s laws track federal law, which generally does not consider political donations to be tax deductible.

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