State tax-credit policies make donating to a Scholarship Granting Organization (SGO) a no-brainer. Donors can help strengthen communities and receive tax benefits at the same time! However, understanding how to communicate tax benefits to prospective donors can be challenging. New regulations by the Treasury Department make explaining tax benefits even more difficult. But, knowing how to communicate tax benefits honestly and effectively can win the trust of donors.
Last June, the Internal Revenue Service (IRS) published new regulations on charitable giving. Changes to the Internal Revenue Code decreased the tax benefits individual donors could receive from contributions too SGOs. In short, the policy change prevents donors from simultaneously claiming a state tax-credit and a federal charitable deduction on the same donation. Donors are allowed to claim federal charitable contribution deductions on the difference between their donation and state rebate.
For example, if a state awards a 60 percent tax credit for SGO donations, and a donor contributes $1,000 to the program, the donor will receive a $600 tax credit. The donor must then reduce the $1,000 contribution by the $600 SGO tax credit, resulting in a federal charitable contribution deduction of $400.
The best way to communicate this information to prospective donors is visually. Math is difficult to read, but a lot easier to see. We suggest you include an image on your website like the info-graphic posted below. If you are interested in a complementary info-graphic for your website, email our team at firstname.lastname@example.org!
The State of ABC awards a 60 percent tax credit for all SGO donations. Depending on your tax bracket, donating $1,000 to the ABC Scholarship Organization could result in: