{"id":411,"date":"2018-06-23T13:47:36","date_gmt":"2018-06-23T17:47:36","guid":{"rendered":"https:\/\/www.saudercpa.com\/blog\/?p=411"},"modified":"2018-06-23T13:51:41","modified_gmt":"2018-06-23T17:51:41","slug":"too-good-to-be-true-funding-private-k-12-education-with-tax-dollars","status":"publish","type":"post","link":"https:\/\/www.saudercpa.com\/blog\/2018\/06\/23\/too-good-to-be-true-funding-private-k-12-education-with-tax-dollars\/","title":{"rendered":"Too Good to Be True: Funding Private K-12 Education with Tax Dollars"},"content":{"rendered":"

Preface: “God never made a promise that was too good to be true” – D.L. Moody. \u00a0The Pennsylvania EITC is good and it is true, and gives Pennsylvania taxpaying\u00a0constituents and parents of children in private\u00a0K-12 grade school, something to smile about today.<\/em><\/p>\n

Too Good to Be True: Funding Education with Tax Dollars?<\/strong><\/p>\n

Credit: Jacob Dietz, CPA<\/em><\/p>\n

The Congress and the President handed the American people tax reform. Tax reform has various benefits that could make you smile, but it also has some reductions in certain tax benefits, such as the SALT (State And Local Tax, it has nothing to do with table salt) deduction cap.<\/p>\n

SALT Cap<\/strong><\/p>\n

The SALT deduction has been capped at $10,000 starting with 2018, although the standard deduction has been increased for taxpayers that choose not to itemize. This new cap prevents a taxpayer from deducting more than $10,000<\/strong> for their real estate taxes, state income tax, and local income tax as part of the taxpayer\u2019s itemized deductions. Please note that this new rule does NOT<\/strong> limit the real estate taxes that can be deducted for real estate rentals or as part of a business<\/em>. For some taxpayers, this cap will affect their bottom line.<\/p>\n

For example, assume Melvin paid $8,000 in real estate taxes, $4,500 in PA income taxes, and $2,000 for local taxes. Under the old tax rules, Melvin\u2019s SALT deduction would have been $14,500 if he itemized his deductions. Tax reform caps Melvin\u2019s SALT is deduction at $10,000. Melvin therefore pays $4,500 of PA income taxes but he receives no increased deduction for it.<\/em><\/p>\n

Is There a Solution?<\/strong><\/p>\n

Is there anything Melvin can do? Melvin could reduce his PA taxes if his business received the Pennsylvania Educational Improvement Tax Credit (PA EITC) by contributing to a qualified institution. The PA EITC is a tax credit against various PA taxes on eligible donations to qualifying organizations. If you want more details on the PA EITC, click here to read this blog.<\/a><\/p>\n

Assume like Robert Louis Stevenson said, “Children are certainly too good to be true” and Melvin\u2019s grandchildren attend a Christian school, and\u00a0he\u00a0endorses their\u00a0education\u00a0already, personally donating funds to the school. Melvin also owns and operates a single member limited liability company (SMLLC.) Instead of donating personally, Melvin could apply for the PA EITC for donations made to the school through his SMLLC. If approved, he could get a 90% Pennsylvania tax credit<\/strong> for his contributions with a 2-year commitment to contribute.<\/p>\n

Let\u2019s put some numbers to the scenario. Melvin\u2019s SMLLC filed for and received approval for a 90% credit ($4,500) for a $5,000 contribution for two consecutive years. The company therefore pays $5,000, and the majority of that $5,000 makes it to his grandchildren\u2019s school (a fee goes to administrative costs if he pays via a conduit scholarship fund say.) Pennsylvania gives his single-member LLC business a $4,500 (90% of $5,000) credit for the contribution, which he can pass down to use on his personal tax return.<\/p>\n

Melvin avoids paying the $4,500 of PA taxes that would have been nondeductible under the new tax reform, and he contributed to education at the same time. Since he owes no state income tax, then the total remaining taxes of $10,000 ($8,000 real estate taxes and $2,000 local taxes) are not limited by the $10,000 cap.<\/strong> Melvin therefore used his money to build the Kingdom while still complying with the government\u2019s rules.<\/p>\n

Reason to Smile<\/strong><\/p>\n

If the tax reform SALT cap caused you to frown, and if you live in Pennsylvania, consider if the PA EITC is right for you. The PA EITC gives taxpayers and parents of children in school something to smile about.<\/p>\n","protected":false},"excerpt":{"rendered":"

Preface: “God never made a promise that was too good to be true” – D.L. Moody. \u00a0The Pennsylvania EITC is good and it is true, and gives Pennsylvania taxpaying\u00a0constituents and parents of children in private\u00a0K-12 grade school, something to smile about today. Too Good to Be True: Funding Education with Tax Dollars? Credit: Jacob Dietz, … Continue reading “Too Good to Be True: Funding Private K-12 Education with Tax Dollars”<\/span><\/a><\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":[],"categories":[1],"tags":[],"_links":{"self":[{"href":"https:\/\/www.saudercpa.com\/blog\/wp-json\/wp\/v2\/posts\/411"}],"collection":[{"href":"https:\/\/www.saudercpa.com\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.saudercpa.com\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.saudercpa.com\/blog\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/www.saudercpa.com\/blog\/wp-json\/wp\/v2\/comments?post=411"}],"version-history":[{"count":3,"href":"https:\/\/www.saudercpa.com\/blog\/wp-json\/wp\/v2\/posts\/411\/revisions"}],"predecessor-version":[{"id":414,"href":"https:\/\/www.saudercpa.com\/blog\/wp-json\/wp\/v2\/posts\/411\/revisions\/414"}],"wp:attachment":[{"href":"https:\/\/www.saudercpa.com\/blog\/wp-json\/wp\/v2\/media?parent=411"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.saudercpa.com\/blog\/wp-json\/wp\/v2\/categories?post=411"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.saudercpa.com\/blog\/wp-json\/wp\/v2\/tags?post=411"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}