Scholarship program offers educational opportunity
In my experience from raising my own kids, as well as watching others raise theirs, the right school at the right time can make a big difference in the lives of some youngsters. In Indiana we are blessed to have a strong public education system, but kids, for a variety of reasons, sometimes need a change of pace to completely thrive in the school environment.
Fortunately, we are also blessed to have strong private and parochial education options in the Region, and several of our local public and private schools are considered some of the best in the state of Indiana.
For some families, however, the prospect of paying private school tuition is simply not feasible, which can limit educational choice for some children. The state of Indiana, however, has led the way with developing programs to enable more school choice for families, and recently the federal government has further joined in the journey toward school choice. One of the primary tools being utilized in this regard is the Scholarship Granting Organization (SGO), and the attractive tax credits associated with supporting these organizations.
An SGO is a state-certified, non-profit 501(c)(3) organization, which acts as a conduit between private donors and private schools to provide tuition scholarships to students from kindergarten to 12th grade. SGOs are funded by cash donations from individuals and businesses which are then pooled to provide qualifying families with private school education-related assistance. Scholarship funds can be used by families to pay for tuition, uniforms, supplies and technology used for educational purposes.
In order to qualify for educational assistance from an SGO in the state of Indiana, a family’s household income cannot exceed 300% of the area median income, which in Lake County is roughly $255,000 and Porter County roughly $263,000.
Scholarship awards can range from a minimum of $500 to a maximum of the full cost of attending a private school. With these generous eligibility guidelines, an SGO can open the door to educational opportunity to a wide swath of students. And as we all know, the right education for the right kid has the potential to change lives. While this reason alone is a great reason to support an SGO, the state and now the federal government are providing some very attractive additional tax incentives for those who choose to support area youth in this way.
Indiana offers a 50% state tax credit for individuals or corporations who donate cash to qualified, state-certified SGOs. This means if a taxpayer donates $1,000 to an SGO, their Indiana state income tax can be reduced by up to $500. There are also no limits to the amount any one taxpayer can donate to an SGO and receive the state tax credit, although total tax credits in the entire state for any given year are capped at $18.5 million. For cap purposes, the fiscal year runs from July 1 to June 30 the following year, which means these tax credits are about to renew in a few weeks. While the tax credit is not refundable, meaning it can only be used to reduce actual income tax liability, the credit can be “carried forward” on future tax returns for up to nine years.
In addition, starting Jan. 1, 2027, the federal government will also offer a 100% federal tax credit of up to $1,700 for taxes owed to the IRS. IRS rules prohibit “double-dipping,” which means the state tax credit and the federal tax credit cannot offset the same donated dollars, but I can envision a scenario where a $1,000 donation to an SGO could result in total state and federal tax credits of about $750. Of course, a tax professional should be consulted to provide actual planning calculations. As tax planning tools go, this is one of the most compelling and attractive in my opinion.
Legacy Foundation in Lake County is a prominent SGO serving the Region, and there are a number of statewide SGOs who can also help donors with this program. Reach out to me, or Jodi Kateiva at Legacy Foundation at jkateiva@legacyfdn.org to find out more.
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.
