January 29, 2018
Most of you have heard about the new tax provisions in the Tax Cuts and Jobs Act. This act places a limit on the deductibility of state and local taxes on federal individual income tax returns for 2018 through 2025. Under the new rules, taxpayers are going to be limited to $10,000 of state and local income taxes, real estate taxes, and personal property taxes paid and assessed in each year.
The state of Alabama passed the Alabama Accountability Act (AAA) in 2013. It provides scholarships to students to attend non-public schools. This works through preapproved Scholarship Granting Organizations (SGO). See a list at https://revenue.alabama.gov/legal/alabama-accountability-act.
Why is this important and how does this work? If you are filing a 2018 Alabama tax return, ask the following questions:
- Will your itemized deductions exceed $12,000 for single filers or $24,000 for married couples?
- Will your total state and local taxes exceed $10,000?
If your answer is yes to both questions, explore the potential benefits offered by AAA.
When you donate to a SGO under the AAA, you will receive a state tax credit dollar for dollar for up to one-half of your total state tax liability limited to $50,000. The best way to understand this provision is to think of the following: the donation is treated like an estimated tax payment to the Alabama Department of Revenue. This moves the payment from the taxes category to a charitable contribution on the federal income tax return; as a result, this payment becomes tax-deductible.
If you think this may benefit you, please call our office to schedule a time to discuss your situation. The state does cap the overall total donations at $30 million per year. The cap is first come first serve, so you need to act now.