How would you like to save a huge amount on your Virginia income taxes this year with a potential to roll over unused amounts for up to the next five years? What if the savings could be applied to your business income taxes as well as to your personal income taxes?
You have this opportunity using the Virginia Education Improvement Scholarship Tax Credit Program. This program allows individuals and businesses to donate funds, up to certain limits, to a scholarship program for low-income children to attend K-12 private schools in the Commonwealth of Virginia and the donor receives a 65% tax credit on their Virginia income tax return in addition to the normal charitable contribution deduction they would claim on their federal income tax return.
Here Are The Basics of How the Tax Credit Program Works
Step 1: Find a scholarship foundation that is certified by the Department of Taxation to accept donations. In the Fredericksburg area the Community Foundation of the Rappahannock River Region is able to do this.
Step 2: Consult your tax advisor to determine how much of a tax credit you would qualify for based on different donation amounts.
Step 3: Make the donation to the scholarship program.
Step 4: Receive a certificate from the scholarship program certifying that your donation qualified for the tax credit.
Step 5: Bring the certificate with to your tax appointment and give to your tax preparer to claim the credit.
Here is an example of how much the credit could be worth on a typical tax return
Taxpayer is in the 25% Federal tax bracket and 5.75% VA tax bracket. Taxpayer makes a $2,000 donation to a qualified scholarship foundation. This donation saves the taxpayer $500 on their federal return (25% of $2,000), $1,300 on their Virginia return for the credit (65% of $2,000) and $40 for the normal deduction on their Virginia return (5.75% of $700) for a total tax savings of $1,840 from a $2,000 donation or 92% of their donation. Normally this taxpayer would save $615 or 30.75% for a donation to a traditional charity (i.e. church, Red Cross, etc.). This is a 60.25% increase in tax savings just by utilizing this tax credit program rather than making a standard charitable contribution. That is the power of tax credits versus itemized deductions.
This is the time of year when many people make their final charitable contributions for the year for tax purposes so why not make one this year that not only benefits needy students but also provides a substantial benefit to your tax bottom line? Don't wait until the last minute because there is a few business day processing time from when the donation is made to when the certificate can be issued and you don't want to get caught up in the end of the year vacation lurch that can sometimes occur.
If you would like to learn more about the program or get in touch with someone who can get the donation process rolling please don't hesitate to reply. If you would like to model how much you could save from making a donation please let us know and we can run the numbers for you.