The Alabama legislature recently passed the Alabama Accountability Act during the 2013 session. Basically, the act provides scholarships funds for children attending failing schools who transfer to qualified private schools. The state has earmarked a total of $25,000,000 in Alabama Scholarship Reserves.

In an effort to encourage donations, the state will provide a state tax credit (not a charitable deduction) up to the lesser of 50% of the individuals Alabama income tax liability or $7,500.  For corporations, there is no annual dollar limitation. The credit is only applicable to individuals and C corporations and cannot be claimed by “S” Corporations, LLC’s, LLP’s or partnerships. For Federal tax purposes, any contribution to the Alabama fund is a charitable contribution.

Example:

If your 2013 Alabama income tax liability will be $7,000, you can make a contribution of $3,500 and receive an Alabama income tax credit of $3,500. A credit is a dollar for dollar reduction of tax  – just like withholding or making an estimated tax payment. If an individual is subject to alternative minimum tax (AMT) for federal tax purposes, there may be additional benefits.

Contributions must be made to a Scholarship Granting Organization (SGO) which then provides the scholarships. To make a contribution, you must register with the Alabama Department of Revenue (My Alabama Taxes) and then make a donation to a SGO.

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Additional information:

Alabama Department of Revenue: Accountability Act of 2013

“Governor Bentley Offers Taxpayers a Free Lunch”

My Alabama Taxes

Please contact our office to discuss your specific situation.