This information is to update you about a potential tax savings that was created by the Alabama Accountability Act of 2013 (The Act). New amendments make the Act even more attractive for 2015 by increasing the available credit limit to $30,000,000 and allowing pass-through entities to participate in the AAA credit program beginning this tax year.
What You Need to Know About the Act
- A donation costs you nothing & you direct how up to ½ of your Alabama income tax is spent.
- Your donation goes to help needy children in Alabama.
- The credit has increased to $50,000.
- There are additional potential tax savings affecting your Federal Alternative Minimum Tax (AMT).
- You must contribute before 12/31/2015 or before the $30,000,000 cap is reached, whichever comes first.
It Costs You Nothing and Helps Needy Children
As a result of the Act, Alabama taxpayers can receive a nonrefundable State of Alabama income tax credit of up $50,000 (up from $7,500 in prior years) that can offset up to 50% of their state tax liability for the year by making a cash donation to a Scholarship Granting Organization (SGO). The SGOs were created to provide scholarships that allow low income students in failing schools to transfer to a non-failing public school or qualified private school on the approved list. Pass-through entities can now make qualifying donations to SGOs at the entity level on behalf of their members/shareholders, with the related AAA tax credits passing through to the members/shareholders to use on their individual Alabama income tax returns.
The $50,000 individual AAA credit can be used to offset up to ½ of your current year’s tax liability as shown on the 2015 Alabama income tax return. This means a taxpayer with a liability of $100,000 could use the entire individual cap of $50,000, thus reducing their Alabama tax liability to $50,000. Any excess AAA credits left over can be carried forward for three years. The AAA credit can be used in determining Alabama estimated tax payments due in the year of donation.
The program works like this: you write a check to the SGO and receive an equal allotted tax credit on your Alabama tax return for the contribution. The credit is treated as a charitable contribution on your federal tax return but not your Alabama return where it’s treated as a tax credit.
Scroll to the bottom of the page to see a listing of Scholarship Granting Organizations as of April 10, 2015.
You Can Potentially Save Even More
There are other potential savings that come from the interplay of the AAA credit and its effect on your income tax preference for AMT purposes. Alabama income taxes paid are reduced by the credit for the contribution, which in turn reduces the income tax preference for AMT purposes while still allowing the contribution to qualify as a federal charitable deduction. Those who qualify for the full $50,000 state tax reduction can reduce their AMT income by the same amount and the additional savings can approximate $13,300.
You Must Contribute Before It’s Too Late
The $30,000,000 annual contribution limit to SGOs is statewide. Once the limit is reached, no further contributions will be considered for the tax credit. The limit is based on a first come, first served basis. If you are interested in making this contribution to receive the credit, you must do it before the credit limit has been reached and before the end of the year. The cash donation must be made on or prior to obtaining your allocated portion of the $30,000,000. As of November 22, 2015, the remaining available contribution limit was $13,000,000.
To reserve an Alabama credit, go to the Alabama Department of Revenue’s online portal at www.revenue.alabama.gov.
- Once there, click on the MAT (My Alabama Taxes) link located on the left hand portion of the webpage.
- Donors not previously signed up for the MAT service will need to register.
- Individuals registering with MAT will need:
- A social security number
- Donor’s previous year’s Alabama Adjusted Gross Income (2014)
- A valid email address
- Once registered with MAT, you will need to log into your account and select the SGO Donation to reserve the credit for 2015.
- After the credit has been reserved, the contribution must be made to the SGO. The SGO has 30 days to send an acknowledgement of receipt. The department will then issue the electronic AAA credit to you.
If you need assistance with the registration process, please let us know and we will be happy to assist you through the process.
Donations Affect Tax Planning
It’s important to let us know if you are planning to make this contribution for tax planning purposes, especially if you are subject to alternative minimum tax (AMT). For example, if you make quarterly estimates you may want to consider reducing your final Alabama estimate or possibly the withholdings from your wages as a result of the contribution.
We appreciate the opportunity to be of service to you and if you should have any questions regarding this or any other matter, please do not hesitate to contact us.
Alabama Educational Scholarship Program
Scholarship Granting Organizations as of April 10, 2015.
|Name of Organization||Address||Phone||501(c)(3) Status||County|
|AAA Scholarship Foundation, Inc.||103 North Memorial Drive, Suite 307, Prattville, AL 36067||888-707-2465||verified||Autauga|
|Chambers County Educational Foundation, Inc.||PO Box 174, Lafayette, AL 36862||334-864-9852||verified||Chambers|
|Alabama Opportunity Scholarship Fund||PO Box 59188, Birmingham, AL 35259||205-206-7801||verified||Jefferson|
|Beacons of Hope, Inc.||PO Box 12047, Birmingham, AL 35205||205-833-0173||verified||Jefferson|
|Scholarships for Kids, Inc.||PO Box 10204, Birmingham, AL 35202||205-445-2908||verified||Jefferson|
|Foundation for Educational Progress||1699 Old Dry Creek Road||256-837-5266||verified||Madison|
|Rocket City Scholarship Granting Organization, Inc.||PO Box 99, Huntsville, AL 35763||256-369-3927||verified||Madison|
|Montessori Society of Huntsville||15975 Chaney Thompson Road, Huntsville, AL 35803||256-881-3790||verified||Madison|
|One Hundred Black Men of Greater Mobile, Inc.||PO Box 40507 Mobile, AL 36604||351-405-3790||verified||Mobile|