The Georgia qualified education expense tax credit — sometimes referred to as the private school tax credit law — allows individuals, trusts, C corporations and owners of pass-through entities such as S corps and partnerships to receive tax credits for donations to student scholarship organizations that provide scholarships to eligible students to attend private schools.
Donors receive a “dollar for dollar” credit for contributions to the scholarship program. It is a re-direction of Georgia state income tax payments to support students whose parents couldn’t otherwise afford to pay private school tuition.
The donor also receives a charitable contribution deduction on his or her federal (but not Georgia) tax return. Another benefit results for taxpayers subject to the alternative minimum tax because the state tax itemized deduction must be added back to calculate the alternative minimum tax.
But when the itemized deduction is converted to a charitable deduction on the donor’s federal tax return, that deduction is not added back to calculate the alternative minimum tax. A donor in this situation would see a reduction in that tax and a net positive tax saving.
To participate, the taxpayer (whether an individual, trust or C corporation) must complete a pre-approval form and send it to the Georgia Department of Revenue, who will notify them within 30 days whether they have been approved.
The taxpayer then has 60 days to make the contribution to the student scholarship organization, which provides the funds to the school or schools specified in the pre-approval form. The notification includes documentation of approval that must be filed with the Georgia tax return.
Many student scholarship organizations have a streamlined method to assist in the required paperwork. You may be able to fill out an informational form on the organization’s website, which it will use to file the required forms with the revenue department.
Then you will be notified of approval, and you must submit your payment to the scholarship organization within 60 days.
Single tax payers can donate and receive a tax credit for their Georgia income tax liability
up to $1,000. For married tax payers filing jointly, the limit is $2,500. C Corporations and Trusts may donate and receive a tax credit for up to 75 percent of their Georgia income tax liability.
Owners of pass-through entities such as members of LLCs, shareholders of S-Corps or partners in partnerships may donate and receive a tax credit for the total amount of their Georgia income tax liability attributable to the entity up to $10,000.
The statewide limit of the total credit under the act for 2014 is $58 million, and $42 million of that has been used to date, so it is important that you apply as soon as possible to take advantage of the program in 2014.
The total credits approved are expected to meet the maximum within the next few weeks. Contact the school or schools that you wish to receive your donation to confirm that they are participating in the program and to find out which scholarship organization they are using. Contact the organization for specific instructions.
Determining whether a credit can be utilized can be complicated, so it is important that you seek the assistance of a good accountant.
Lisa Conti-Bacon is a CPA and Senior Manager at Hancock Askew & Co., LLP, accountants and advisors. She can be reached at (912) 234-8243 or lcontibacon@hancockaskew.com.