Tax credit offers way to support communities
Psst. In case you hadn't heard, the government is broke. The federal government has now crossed the threshold of $39 trillion in debt, which is now nearly 125% of our annual economic output (GDP) and well above the 100% level traditionally viewed as problematic by investors and economists. Decades of mismanagement of the federal government's fiscal house are coming home to roost.
On the state level, while Indiana is known for its fiscal discipline and public-sector frugality, recent missteps in the state's Medicaid program resulted in a high-profile $1 billion budget shortfall in this vital program. While the lapses were related to forecasting errors, discovered overpayments, and unanticipated growth in some benefit programs, the result of the budget shortfall will impact vulnerable Hoosiers, and the nonprofit organizations serving them, for years to come as the state of Indiana eliminates programs, caps reimbursement rates, and reduces benefits for families.
I can hear the howl of the partisans blaming the other side for this mess, but the truth is there is blame aplenty to go around, and the blame goes back decades and decades. So pick your political team; chances are they governed over the train wreck at some point. Bottom line: the government is broke, and I can't see any potential for this to change.
This doesn't change the reality that there are still vulnerable people in our communities, and the organizations established to serve these vulnerable populations are working hard to find ways to adapt and continue their missions.
More and more, I believe local communities will need to find ways to take care of their own and develop solutions to help ease the lack of government funding. Fortunately, the State of Indiana has some innovative tax credit programs designed to help local communities raise the funding to support the important services provided by some of our great local nonprofits. One of the most innovative public-private partnership programs in Indiana is the Neighborhood Assistance Program, or NAP credit.
The Indiana Neighborhood Assistance Program (NAP) is a state tax credit designed to encourage private support for community-based programs that serve economically disadvantaged people and neighborhoods. The program allocates $2.5 million in tax credits each year. These credits are awarded to qualifying 501(c)(3) nonprofit organizations, which then offer them to individual and business donors as an incentive to support their missions.
Under the program, donors receive a state income tax credit equal to 50% of their contribution. A $1,000 donation, for example, generates a $500 credit that directly reduces the donor's Indiana state tax liability. The minimum contribution is typically $100 (yielding a $50 credit), and no single donor may claim more than $25,000 in NAP credits in a calendar year, which enables the organizations being supported to develop relationships with more and multiple smaller donors. Credits are nonrefundable and must be claimed on the state tax return for the year the donation is made. Unused credits cannot be carried forward or back.
Nonprofit organizations apply annually for an allocation of credits. Returning organizations in good standing may request up to $15,000, while new applicants are generally limited to $5,000. Approved projects must benefit economically disadvantaged areas or individuals and fall into categories such as affordable housing, childcare, educational assistance, emergency services, job training, medical care, counseling, recreational facilities, downtown rehabilitation, or neighborhood commercial revitalization.
Once an organization receives its credit allocation, it can begin accepting qualified donations in the form of cash, check, credit card, liquidated stock, certain property gifts, and some in-kind building materials. The program starts each year, and credits become available on July 1. The process of donating and receiving the credit is straightforward and involves filling out a state form provided by the organization being supported.
For donors, the appeal is straightforward: the credit reduces state tax owed dollar-for-dollar, and the contribution may also qualify as a charitable deduction on a federal itemized return, creating an additional tax benefit. For nonprofits, the program is a powerful fundraising tool. Because the state effectively matches half the gift through the tax credit, organizations can attract larger or more frequent donations than they might otherwise receive.
The program year runs from July 1 through June 30. Organizations must meet sales benchmarks (often 60% by the end of the calendar year and 100% by early the following spring) or risk losing unused credits. Demand frequently exceeds supply, so credits are distributed on a first-come, first-served basis once the program year opens.
In practice, the NAP tax credit allows Hoosiers to direct a portion of their state tax dollars toward local priorities they care about (whether housing, youth services, workforce development, or neighborhood revitalization) while reducing their own tax bill. It remains one of Indiana's most direct ways for private citizens and businesses to support community improvement with a meaningful financial incentive.
Just a couple of organizations participating in the NAP credit program in Northwest Indiana are Habitat for Humanity of NWI, Food Bank of NWI, Tradewinds, and Planting Possibilities, and in Porter County are Opportunity Enterprises, the Valparaiso YMCA, Hilltop Neighborhood House, and The Caring Place. The entire list can be found at Indiana.gov, or email me for the current list.
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. Stock investing includes risks, including fluctuating prices and loss of principal. No investment strategy can guarantee a profit or preserve against loss. Past performance is not a guarantee of future results. This material may contain forward looking statements; there are no guarantees that these outcomes will come to pass.
Marc Ruiz is a wealth advisor and partner with Oak Partners and registered representative of LPL Financial. Contact Marc at marc.ruiz@oakpartners.com. Securities offered through LPL Financial, member FINRA/SIPC.
