More recently, the Coronavirus Aid, Relief, and Economic Security (CARES) Act has made it easier for taxpayers to donate to nonprofits, providing a unique opportunity for collectors to support art institutions. Instead of having their donations capped at 50 or 60 percent, an individual can now donate up to 100 percent of their adjusted gross income—or the amount of money a taxpayer makes in a year—to a nonprofit.
“So someone who makes, say, $10 million and wants to give away $10 million can give away $10 million, and potentially eliminate all of their taxable income if they do it in a certain way and a certain manner,” said Lee.
Individuals who take the standard deduction can also donate up to $300 to a public charity and receive an “above the line” charitable deduction for that amount and deduct that total from their adjusted gross income.
“The idea is to encourage people to give a lot of money this year,” Verano said, noting that she had already seen some interest in the new provision. She pointed out that these provisions only apply to deductions in 2020, meaning they’re not relevant for those who haven’t yet filed their 2019 taxes.
Verano also warned that states are likely to continue or even step up their enforcement of sales tax collection during the pandemic. Both the auction house or gallery and the purchaser of an artwork are obligated to make sure sales tax is paid in the correct state jurisdiction.
She outlined a scenario where a collector may have purchased a painting from a gallery in New York and planned to have the dealer ship it to their home in California, but then ended up storing the work at the New York gallery for the time being due to the pandemic. If that work sat in New York for long enough, the state’s tax authorities may say that the artwork was “delivered” in New York and that New York sales tax needs to be paid on that work. If COVID-19 has disrupted a collector’s plans for buying or shipping art, that individual should refer to a tax professional to see where they may be required to pay sales tax.
“At some point, New York might consider that artwork to have been delivered to New York, so you might need to think about paying New York sales tax instead of California sales tax,” she said.