How would you like to give $10,000 to your favorite school to fund a financial aid scholarship, all while spending less than $2,000 of your own money? This may sound too good to be true, but it’s possible thanks to Indiana’s School Scholarship Tax Credit program. The best part – it’s helping make Indiana students’ dreams of a private education a reality!

SGOs and Indiana’s Tax Credits

Indiana’s tax credit is available to individuals or corporations that donate to a Scholarship-Granting Organization (SGO) approved by the Indiana Department of Education (DOE) and administered through the Indiana Department of Revenue (DOR). Donors will be eligible to receive a 50 percent tax credit against their individual or corporate state tax liability.

These SGO scholarships are given to families who qualify for financial need based on an income threshold. So, the money is only going to families needing financial assistance. Your donation may send someone to a private school who would otherwise never be able to afford it while also helping to create greater diversity within our education system.

Your Triple Tax Benefit

Under the current rules, on your state tax return, you receive a 50 percent Indiana state income tax credit.  In addition, on your federal tax return, you qualify for a charitable tax deduction for the contribution amount minus the state credit. But let’s take it one step further. Through the SGO program, you can gift appreciated stock, creating a triple-threat tax savings strategy.

For example, let’s assume you gifted $10,000 of appreciated stock with a cost basis of $4,000. Here’s how it works:

  • $5,000 Indiana income tax credit
    • 50% of $10,000 = $5,000
  • $1,428 in long-term capital gains savings from stock gift
    • $6,000 of unrealized gains x 23.8% (includes Net Investment Income Tax) = $1,428
  • $1,850 of federal tax savings, assuming you are in the highest tax bracket of 37 percent
    • $5,000 ($10,000 reduced by $5,000 state credit) x 0.37% = $1,850
  • $8,278 Total maximum savings = $8,278

As you can see, a $10,000 gift to a qualified SGO, which will be used in funding financial aid scholarships for income-eligible families, would ultimately cost only $1,722. Thank you, Indiana Department of Education!

Here’s How to Take Advantage of This Triple Tax Break

If you’re interested in benefiting from this gifting strategy, you need to be aware that the state of Indiana has allocated $18.5 million in tax credits, with benefits available on a first-come-first-served basis. The state’s fiscal year runs from July 1, 2022, through June 30, 2023. To find a list of eligible institutions, gifting instructions, and more information about the program, please visit www.in.gov/dor/4305.htm.

Summary

Our Indiana legislators, the Department of Revenue, and the Department of Education are doing a wonderful service by incentivizing Indiana taxpayers with a 50 percent tax credit when they donate to eligible SGOs. The program supports students and families in financial need while financially rewarding donors. Indiana’s School Scholarship Tax Credit Program is a win-win for everyone! 

Evan D. Bedel, CFP, is President at Bedel Financial Consulting, Inc., a wealth management firm located in Indianapolis. For more information, visit their website at www.BedelFinancial.com or email Evan at EvBedel@BedelFinancial.com

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