Tax Credit Information for PTE’s

Pass-Through Entities (“S” Corporations, partnerships, and LLCs) can donate up to 100% of their Alabama income tax liability to Scholarships for Kids and potentially receive a federal benefit as well.

The Dept. of Treasury issued new regulations that may allow your business to make a donation to Scholarships for Kids, receive the full Alabama state income tax credit, and also treat the contribution as a business expense for federal tax purposes. In other words, your business may be able to reduce its federal taxable income through a deductible expense, while you reduce your personal Alabama state income tax liability dollar-for-dollar by the amount of your business’s donation. The potential result is a combined federal and state tax benefit that could exceed the total amount of the donation.

Any determination of whether your business qualifies under the new regulations must be based on your specific facts and circumstances. Maynard Cooper & Gale have prepared a memorandum (linked below) that explains the new regulations which can be used as a resource when discussing this opportunity with your tax professional.

The Alabama Accountability Act currently establishes an annual $40 million statewide limit on the tax credits. The credits are awarded on a first-come, first-served basis, and may be carried forward for 3 years.

The deadline each year is December 31.