Indiana’s School Scholarship Tax Credit

Dec 5, 2022

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!

About Us | Get the Bedel Blog | More Tax Planning Articles

Schedule a Consultation

We have helped our clients answer these questions and more. If you want a clear understanding of your financial future, and need help making changes to reach your goals, schedule a consultation and we can get started.

Schedule a Consultation

Prior to implementing any investment strategy referenced in this article, either directly or indirectly, please discuss with your investment advisor to determine its applicability. Any corresponding discussion with a Bedel Financial Consulting, Inc. associate pertaining to this article does not serve as personalized investment advice and should not be considered as such.

Recommended Articles

Image for What To Do With a 529 Plan for a Disabled Child

Oct 21, 2024

What To Do With a 529 Plan for a Disabled Child

With TCJA expiring on 12/31/2025, tax-free rollovers are...

Image for The Gift that Keeps on Giving:  Using an IRA to Fund a Charitable Gift Annuity

Oct 7, 2024

The Gift that Keeps on Giving: Using an IRA to Fund a Charitable Gift Annuity

With the passing of the SECURE 2.0 Act, donors over the...

Image for It’s Not too Late to Reduce Your 2024 Tax Bill

Sep 23, 2024

It’s Not too Late to Reduce Your 2024 Tax Bill

Having a sizable amount of taxable income sounds and...

Image for Tax Changes Coming Soon?

Jul 22, 2024

Tax Changes Coming Soon?

Taxpayers underwent a dramatic change in late 2017 with...