One of these changes is the limit of the State and Local Tax (SALT) deduction. In years past, a taxpayer was not limited to the amount he/she could deduct on amounts paid for state income taxes, real estate taxes, and personal property taxes. However, starting in 2018, a taxpayer will be able to deduct only up to $10,000 for these amounts. The $10,000 limit applies to single taxpayers and married filing jointly taxpayers, alike. This limit may be especially painful for those of you with sizeable state income tax liabilities and/or substantial property tax payments.
For South Carolina residents, the good news is that there may be a viable way for you to increase your SALT deduction. It’s called the Exceptional SC Scholarship Fund, and you can read more about it in my last article, “Why Your Holiday List Should Include This Strategy.” That article detailed a way to reduce your Alternative Minimum Tax (AMT) liability. However, since the federal income tax reform increased the AMT exemption/phase-out amounts, fewer taxpayers will be subject to AMT in 2018. That’s why the Exceptional SC Scholarship Fund may be applicable to more taxpayers this year than in previous years as a way to reduce your income tax liability.
The Exceptional SC Scholarship Fund is a program “made up of tax-deductible donations that serve as scholarships for the private school tuition of exceptional needs students in South Carolina.” (You can read more about the program here). The possible benefit to you is that an individual or corporation who pays taxes in South Carolina and contributes to this fund could receive a dollar-for-dollar tax credit to offset up to 60% of their South Carolina state tax liability. In addition to receiving a South Carolina tax credit, you are allowed to deduct the same amount as a charitable donation on your Federal income tax return (as an itemized deduction).
For those of you who expect to itemize and have state income tax payments and property tax payments in excess of $10,000, contributing to this program may reduce your tax bill. That’s because a contribution to the Exceptional SC Scholarship Fund is considered a charitable donation instead of a state income tax payment for federal income tax purposes. In other words, you may be able to deduct more than $10,000 of state income tax payments by using this strategy.
Does this program sound appealing to you? If so, consider contacting your CPA or tax preparer NOW because the program begins accepting donations on July 2, 2018 at noon and is expected to reach full capacity very quickly. This year’s threshold is $12,000,000, and the program operates on a first-come, first-served basis. Once the program reaches full capacity, additional donations will not be eligible for a state tax credit. Being an early bird may really pay off this year!
Disclaimer: The above-mentioned information is generic in nature and is intended for informational purposes only. It assumes current income tax laws remain in effect and does not consider any of the possible tax reforms. Please consult with your tax preparer to determine if you should consider making a contribution to the Exceptional SC Scholarship Fund.