DONATING TO TAX CREDIT SCHOLARSHIPS CAN MAKE UP FOR LOST DEDUCTIONS
Q: It’s the last quarter of the year and giving season is upon us. What changes can donors expect to see when filing their 2018 taxes?
A: This year’s tax cut bill, the Tax Cuts & Jobs Act (TCJA), puts money in almost every working American’s paycheck. But to help pay for the tax cuts, TCJA significantly limited income tax deductions in several areas, including state and local taxes. Some taxpayers may not be able to deduct their charitable giving under these new regulations. This may decrease a taxpayer’s motivation to donate to their favorite causes.
Q: What are the benefits of donating to tax credit scholarships?
A: One way to make up for losing deductions is to donate to a scholarship granting organization, or SGO. There are several SGOs in Oklahoma, including the Opportunity Scholarship Fund, which use private donations to provide scholarships for lower-income families to attend accredited K-12 private schools. A contribution to an SGO provides the donor an Oklahoma income tax credit and a charitable contribution deduction. A tax credit provides a dollar-for-dollar reduction of tax liability, while a tax deduction lowers the income upon which the taxpayer’s marginal tax rate is calculated. So, the donor gets tax benefits — whether they itemize their deductions or not — while helping lower-income kids get the education they want. It is a win-win for the donor and the kids of Oklahoma.
Q: What does it mean if a taxpayer can’t itemize donations?
A: As a donor, it is important to determine your situation under the new tax law. Even if a taxpayer does not have enough deductions to itemize on their tax return, they can still get a 50 percent to 75 percent income tax credit on their donation to an SGO. Alternatively, donors could double their giving every other year to have enough deductions to itemize in the year they give to charitable organizations.
Q: Will nonprofits be impacted by the new IRS regulations?
A: It is possible charitable organizations may see a decrease in year-end gifts. With the higher standard deduction and lower tax rates, some benefactors may decide not to give, because they aren’t going to get any tax benefit from the gift. For many people, giving to a cause is not driven by the tax benefits. But donors who must have the tax benefits for providing a charitable gift may decide not to give this year.