As the September 15th quarterly tax deadline approaches, the IRS has cleared the way for South Carolina businesses to support exceptional needs educational scholarships and receive a federal tax deduction.
Every year, the Exceptional SC Scholarship Program (§12-6-3790) funds thousands of scholarships that allow exceptional needs students across the state to attend schools that best fit their learning needs. Recognizing the value of these scholarships, the General Assembly adjusted the state tax law and allowed every business that pays taxes to the State of South Carolina to:
- make a 501(c)(3) contribution to Exceptional SC to fund exceptional needs scholarships,
- receive a dollar-for-dollar state tax credit for any and all South Carolina taxes that the business normally pays – up to 60% of their state tax liability,
- AND take a federal deduction on that contribution!
This video briefly explains the concept.
New Safe Harbor Provisions
While some CPAs have questions surrounding the federal deductibility after the passage of the Tax Cuts and Jobs Act, a recent article in Accounting Today breaks down brand new IRS “Safe Harbor” provisions that are protecting business contributions and allowing companies to take advantage of this special tax break.
This is a great opportunity for South Carolina businesses of all sizes – from Sole Proprietorships to LLCs and Corporations – to fund scholarships for exceptional needs students and receive a federal tax deduction for the 2019 tax year.
The IRS has been more open to some charitable deduction workarounds for business taxpayers, with Treasury Secretary Steven Mnuchin even reassuring businesses that contribute to school choice programs that they would be able to continue to do so (see IRS will allow contributions to state and local tax credit programs as deductible business expenses).
“The IRS clarification makes clear that the longstanding rule allowing businesses to deduct payments to charities as business expenses remains unchanged under the Tax Cuts and Jobs Act,” Mnuchin said in September. “The recent proposed rule concerning the cap on state and local tax deductions has no impact on federal tax benefits for business-related donations to school choice programs.”
In September the Treasury and the IRS issued guidance in the form of frequently asked questions to spell out its view of the matter.
The FAQ states that “a business taxpayer making a payment to a charitable or government entity described in section 170(c) is generally permitted to deduct the payment as an ordinary and necessary business expense under section 162 if the payment is made with a business purpose…regardless of the form of the business.”
In the News
A recent article in US News (see “Tax Guidance Relieves Some Private School Choice Supporters”) makes it clear that funding scholarships like Exceptional SC should remain tax deductible.
“This rule should give clarity to businesses and pass-through entities that are making contributions to non-profit organizations which in turn are helping hundreds of thousands of students access the school that is right for them,” John Schilling, president of American Federation of Children, the private school choice advocacy group that [Secretary of Education Betsy] DeVos formerly led, said in a statement.
An article in The Daily Signal (see “Treasury Department Just Fixed a Situation That Threatened School Choice”) reinforces this.
“In the final regulation and accompanying notice, the Treasury fixed the problem and re-established the federal tax system’s neutrality toward state tax credit programs, as recommended by The Heritage Foundation in a public comment.”
To begin the process of turning your next quarterly tax payment into a TAX CREDIT and TAX DEDUCTION…