Treavor Dodsworth CFP®, CPA, CKA®
#109 - Charitable Tax Credit
Many states around the country offer tax credits for certain charitable contributions.
While I do not recommend giving solely for the tax deduction/credit, as it will typically not make sense from a financial or charitable standpoint, I do recommend taking advantage of tax benefits you qualify for.
One of the charitable tax credits in Indiana is called the Scholarships for Education Choice program. With this program, donors contribute to Scholarship Granting Organizations (SGO), and then that SGO provides scholarships to eligible students.
A donation to the SGO qualifies the donor for a non-refundable (limited carryforward available) 50% state tax credit if there are still credits available to be awarded. You can click the link to see if there are still credits available for the program's fiscal year (July 1 - June 30).
Not only does the donor qualify for a 50% state tax credit but they may be able to take a federal charitable itemized deduction for the other 50% and a federal state/local tax itemized deduction for the first 50% (subject to SALT cap).
In other words, if an individual in the 22% tax bracket that itemizes deductions donates $1,000 they could receive a $500 reduction of state taxes and potentially a $220 reduction of federal taxes. Therefore, this hypothetical donor reduced their taxes by $720 by making a $1,000 charitable contribution.
I recently found out you can designate Shepherd Community Academy as the school when donating to the SGO Institute for Quality Education (hence what sparked this email) and am excited to support the work of Shepherd in a tax-efficient manner.
While the above program I mentioned is for Indiana, there are programs for different types of contributions in many different states around the country. There are several limits and exceptions to the above, therefore please review your individual situation specifically. What percentage the state allows as a tax credit could change how it is treated from a federal perspective.
When making charitable contributions, don’t forget to take into consideration state tax credits.
Thank you for reading!