Having an opportunity to reduce your income taxes and benefiting a charitable organization at the same time is a welcome opportunity for many taxpayers.
Several states offer tax credits for charitable contributions to targeted charitable organizations. This tax credit becomes a win-win for both the taxpayer and the charitable organization alike. This type of charitable tax credit at the state level is new to Ohio but several states have had this type of incentive for years.
Beginning with tax year 202,1 individual taxpayers and pass-through entities can claim an Ohio tax credit for financial contributions made to an eligible scholarship granting organization (SGO). The credit equals the lesser of $750 or the total amount contributed per individual to the SGOs during the year. A married couple can claim up to $1,500 as well.
This dollar-for-dollar state tax credit will offset the 2022 Ohio income tax liability for qualified donations made by Dec. 31, 2022. The taxpayer will receive a 100% tax credit for contributions claimed on the 2022 tax return. In other words, the taxpayer’s state tax can be reduced dollar for dollar up to $750 for an individual filer and $1,500 for a married couple on these qualify SGO contributions.
The tax credit is limited to the total Ohio state income tax due for the year that is reported on the second page of their individual income tax return on line 13 of form Ohio IT 1040. Taxpayers can contribute more than $750 per individual to the SGO, but the credit is capped at $750 per individual taxpayer and $1,500 for a couple filing married filing jointly.
The organizations that are eligible for the scholarship certification must meet certain criteria. This includes being a religious or non-religious not for profit organization exempt from federal taxation under section 501(a) of the Internal Revenue Code as an organization described in section 501 (c)(3) of the Internal Revenue Code; primarily award academic scholarships for students to attend primary and secondary schools (k-12); prioritize awarding scholarship to low-income primary and secondary school students; and comply with all registration and reporting requirements with the Ohio Attorney General applicable under the Ohio Charitable Trust Act.
The taxpayer can also receive a federal tax deduction for this charitable contribution as it is considered a qualifying charitable contribution. So, there could be both a state and a federal tax benefit for this charitable contribution depending upon the taxpayers’ specific situations.
Gifts must be made to a qualified SGO. Find a list of the qualifying SGOs at charitable.ohioago.gov. This list is continuing to grow as more charitable education groups apply for acceptance and become certified by the State of Ohio as qualified SGOs. I know that I have received mailings and emails from the Diocese of Cleveland, as well as several other private schools that our family has had a prior affiliation with to inform us of this new credit and to encourage our participation and contributions.
You have a few weeks until the end of the year to make this contribution. Since you will be paying the same amount of money one way or the other, why not direct your funds to a qualifying SGO, rather than paying the same amount of money to the State of Ohio in your income tax obligation. I personally would rather have my money go to this type of scholarship granting organization rather than to the general fund of the State of Ohio.
Paul Pahoresky is the owner of PRP & Associates. He can be reached at 440-974-1040 extension 214 or at paul@prpassoc.com. Consult your tax advisor for your specific situation for additional information and guidance on these topics.
