FGMK Tax Alert: Illinois Income Tax Credit – Invest in Kids Program – 75% Illinois Income Tax Credit for Qualified Contribution to Illinois Non-Public Schools

Prepared by Tax Partner Matthew Fuller and Tax Director Dean Pearson

Taxpayers making contributions to Scholarship Granting Organizations (SGOs) will be entitled to receive a credit on their Illinois state tax returns equaling 75% of the amount contributed to the SGO.  This credit will be made available for contributions made in 2018.  The maximum allowable donation qualifying for this credit will be $1,000,000, resulting in a $750,000 credit.

It is important to note that Illinois will be capping the total amount of this available credit to a total of $100 million worth of gifts.  This cap will be allocated on a regional basis to better ensure an even distribution of charitable funds.  The application for this credit will be made available on January 2nd at midnight.  Thus, there may be a race by taxpayers to claim this credit before the $100 million has been fully accessed.  To qualify for this credit, the taxpayer will be required to do the following:

  1.  Identify the SGO when applying for the tax credit. Illinois began taking applications from charitable organizations to qualify for SGOs on December 1st.  It is anticipated that over the next few days Illinois will be providing the list of those organizations that qualify for SGO status, and it is hoped that this list will have a substantial number of qualifying organizations to provide taxpayers the ability to earmark their contribution to a desired organization.  
  2.  Establish a “My Tax Illinois” account.  This account will be required to allow Illinois taxpayers to apply either individual or business income for this credit.  We strongly encourage you to do this as soon as possible since the process can take up to two weeks for you to receive your P.I.N.  Do not wait until year-end to establish this account.
  3.  Provide the following information upon application for the credit. To claim this credit, taxpayers would be required to provide the following:
    • the taxpayer’s name and address;
    • the amount the taxpayer will contribute;
    • the geographic region for which the contribution will be made;
    • the specific SGO to which the contribution will be made; and
    • an acknowledgment that no credit may be taken for any qualified contribution for which the taxpayer claims a federal income tax deduction. This is an important requirement since the claiming of this tax benefit will be either a (federal) or (Illinois) decision but not both.  For most taxpayers, taking the Illinois tax credit instead of claiming the federal charitable contribution deduction results in overall greater tax savings.  But the taxpayer should consult with his or her tax advisor to determine the best path to pursue.  Also, if we see limits related to federal tax deductions with tax reform, it may demonstrate even further that the Illinois tax credit is the best option available.
  4. Receive the Contribution Authorization Certificate (CAC). Assuming the above requirements have been met, the taxpayer will receive this certificate.  Again, these certificates will be available only on a first come, first served basis, so time will be of the essence to meet the requirements outlined above.
  5. Make the contribution within 60 days of receipt of the CAC. Upon receipt of a CAC, the taxpayer has 60 days to make the proscribed contribution to an SGO.  Any contributions received by the SGO more than 60 days after the receipt of the CAC by the taxpayer will not be eligible for tax credit. 
    • Individual taxpayers can direct their contribution to a specific school. 
    • Non-individual taxpayers may not direct their contribution to a specific school.
    • Under no circumstance, may a contribution be directed to a particular student or group of students.  
  6.  Upon receipt of the contribution, an SGO will issue a Certificate of Receipt (COR). This is the document that substantiates the qualification of this Illinois tax credit.

Since the claiming of this credit will be a sophisticated process, it is strongly recommended that you seek the guidance of a qualified tax advisor to determine whether this tax strategy is suitable for you.   Should you have any questions, please feel free to contact either Matthew Fuller at 847.444.8491 or Dean Pearson at 312.638.2901.

About FGMK

FGMK is a leading professional services firm providing assurance, tax and advisory services to privately held businesses, global public companies, entrepreneurs, high-net-worth individuals and not-for-profit organizations. FGMK is among the largest accounting firms in Chicago and one of the top ranked accounting firms in the United States. For more than 40 years, FGMK has recommended strategies that give our clients a competitive edge. Our value proposition is to offer clients a hands-on operating model, with our most senior professionals actively involved in client service delivery.

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