Benjamin Franklin is credited with the statement, “an investment in knowledge pays the best interest.” A Louisiana program that provides K-12 scholarships to children of disadvantaged families appears to be based on this axiom. We spoke to Clint D. Mock, CPA, a tax incentive specialist and the CEO of Mock & Associates, LLC, for details on how the Louisiana Tuition Donation Credit benefits both students and donors.
“This incentive has the potential to especially benefit taxpayers who are able to itemize deduction in 2018 and who expect to incur more than $10,000 in state and local taxes (including property taxes) annually,” Mock says.
Mock offered this example: “A taxpayer with sufficient itemized tax deductions, a $30,000 state income tax liability could easily save nearly $10,000 or more in federal income taxes by donating to the STO. If the same taxpayer pays their liability through withholdings or estimates paid directly to the department of revenue, they stand to lose some or all of the $30,000 deduction and the resulting federal tax savings.”
“It is the dual impact of the state tax credit and federal tax liability reduction that makes this specific charity so unique and so potentially advantageous to taxpayers,” Mock added. “Financial benefits aside, this program empowers children from low-income households, here in our own home state of Louisiana, to choose the school that best prepares their child for college and their future careers.”
Though this program offers great financial returns and accomplishes an important mission, there are a number of important nuances to be aware of and documents to obtain.
In light of the recent tax law changes, the IRS is currently drafting regulations to help taxpayers better understand their position on these types of programs. Charitable organizations, taxpayers and advisors should monitor IRS communications for relevant updates.
The professionals at Mock & Associates can help you stay in compliance and ensure your donation receives the maximum allowable benefit. Contact Clint Mock and his team at mock-associates.com or 1-833-INCENTV to learn more about other Federal & State credits and incentives and explore the financial impact your donation could provide.
Here’s how it works:
- For tax years 2017 and before, 100% of state and local taxes (SALT) paid were deductible by a taxpayer on their federal return. For tax years 2018 and after, the deduction is limited to a total of $10,000 per return. This limitation has the potential of dramatically increasing a taxpayer’s federal liability.
- Effective January 1, 2018, the state of Louisiana will allow an income tax credit equal to 95% of all donations to a qualified state tuition organization (STO) and 501(c)(3) charitable organization. Essentially, taxpayers can direct their tax payments to organizations that provide K–12 scholarships to underprivileged children.
- As a qualified charitable contribution, the donation is deductible as a charitable contribution on the taxpayer’s federal return, subject to their total itemized deductions exceeding their standard deduction ($12,000 (single taxpayer), $18,000 (head of household) or $24,000 (married filing jointly).
- By contributing to the STO, the taxpayer gains a charitable deduction rather than losing some or all of their deduction of state and local taxes paid.