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Expanded Georgia State Scholarship Organization (SSO) Credit Available for 2014
Since 2008, Georgia has allowed an income tax credit for up to $2500 annually for married joint-filing individuals contributing to State Scholarship Organizations that providing scholarship funding for private schools in Georgia. Given that the credit is allowed as both a credit for state income tax purposes and as a deduction for federal income tax purposes (no deduction is allowed for Georgia income tax purposes), it has presented an arbitrage opportunity of sorts for many Georgia taxpayers. Most taxpayers able to absorb the $2500 credit fully against Georgia income tax have effectively been able to buy down their tax liability at a discount using this technique in addition to providing education funding dollars for Georgia students. For example, someone owing Alternative Minimum Tax for federal purposes could generate net savings of around 29% by making the $2500 contribution if fully able to absorb the state credit and federal deduction. Any excess credit amount under this provision is allowed as a carryforward for up to 5 years.
In 2013 the Georgia legislature expanded this credit to owners of passthrough business entities (S-Corporations, partnerships and LLC’s) with an expanded $10,000 limit. However the carryover provision is not available under this rule, meaning that in order to fully capture the benefit of the credit, a taxpayer would want to be sure they have at least $10,000 in Georgia tax liability for the year resulting from income from passthrough entities. The credit can only apply to income from passthrough entities. This would require Georgia taxable income of at least $166,667 from passthrough entities, including W-2 wages from those entities. And the taxpayer cannot take both the $2500 credit and the $10,000 credit. The credit cap of $10,000 for passthrough business owners can apply separately for husband and wife if each has income from flowthrough entities.
In order to claim the credit for 2014, taxpayers will need to act quickly. There is an annual statewide cap on contributions, and the 2013 credit cap was reached in May 2013. It’s estimated that the 2014 credit cap will probably be reached by early March 2014.
To apply for the credit, taxpayers can visit this website for the application form and choose which credit, the $2500 credit or the $10,000 passthrough credit they wish to apply for. This is a preapproval form required before a donation can be made and credit claimed: https://etax.dor.ga.gov/inctax/2011_forms/TSD_HB-1133_FORM_IT-QEE-TP1.pdf
A list of all SSO’s in Georgia with contact information can be found here: http://www.gadoe.org/External-Affairs-and-Policy/Policy/Documents/SSO%20List.pdf
Please contact us at 770-980-1080 if you have any questions on this law or if you would like help determining whether either of these credit provisions make sense for you.