FACE of RI

DECEMBER 2019
In December 2019, Treasury/IRS issued sweeping guidance that makes clear that most donors are permitted to take federal income tax deductions for certain contributions to SGOs despite also receiving a state tax credit in return for the donation. This is fantastic news for the 22 state tax credit scholarship programs and Scholarship Granting Organizations (SGOs) that provide educational choice to over 300,000 students nationwide.

Below is an overview that you can highlight to your tax advisors:
 
Individual Donors
For donations made after August 2018, Treasury/IRS allows individuals who get a state tax credit for contributing to an SGO to ALSO get a federal tax benefit. These donors can take a federal state and local tax deduction, up to the limit for deductions related to state and local tax deductions of $10,000 ($5,000 for married taxpayers filing separately)
 
“C” Corporate Donors
For donations made in 2018 or later, corporate donors that get a state tax credit for contributing to an SGO can treat that contribution as an ordinary and necessary business expense for federal tax purposes. 
 
Pass-through Organizations
For donations made in 2018 or later, S-Corporations, LLC’s, partnerships and other pass-through entities that get a state tax credit for contributing to a SGO may be able to treat that contribution as an ordinary and necessary business expense (if certain conditions are met) AND pass through the state tax credits to partners/shareholders.