What is the Greatest Gift? A Better Education!

Understanding the benefits of Scholarship Granting Organizations

If you could give a child the gift of a great education at no cost to you, would you do it? If your answer is, “Of course I would!” then you need to learn more about the Alabama Accountability Act (AAA).

The Alabama Accountability Act (AAA)

AAA allows you to redirect a portion of your state income taxes to a Scholarship Granting Organization (SGO) who, in turn, will provide funding for a child in a low-income family who is a student of a failing public school to attend a private school or transfer to a non-failing public school.

The current established statewide limit for Alabama tax credits is $30M. These credits are awarded on a first-come, first-serve basis. As of Oct. 18, 2021, there is $24.9M available for claiming.

This is a tax credit, so it does not cost you a dime. However, for individuals, your tax credit is limited to 50% of your tax liability, not to exceed $50,000.

As an example, assume that you expect to owe the State of Alabama $2,000 of income taxes. You decide to redirect $1,000 of those taxes to a qualified Scholarship Granting Organization. First, you write a check to the SGO. Then, on your state tax return, you take a $1,000 tax credit. Finally, you will send the Alabama Department of Revenue $1,000 instead of $2,000. In summary, it did not cost you a dime to redirect these tax dollars to low-income students who are trying to obtain a better education.

There are also tax credit opportunities for C Corporations and Pass-Through Entities. For example, C Corps may be eligible to receive a dollar-for-dollar credit up to 50% of their state tax liability, with no maximum. For Pass-Through Entities, contributions may be deductible as a business expense and generate a state tax credit for owners.

If you need help

For more information on the benefits of the SGO and using your tax credits, visit the websites of these scholarship-granting organizations (SGO’s) in the state:

  • Scholarships for Kids. This SGO has a very helpful step-by-step guide to walk you through their process. They require the parents to contribute at least a nominal amount towards the scholarship, ensuring they are part of their children’s education.  On their website, they “support the importance of parents investing their time, talent and resources to provide a better school community for their children.”
  • Renaissance Scholarships, Inc. Their mission is to provide high-quality educational opportunities to low-income students by partnering with the most academically rigorous, private K5-12 schools in the state of Alabama through a scholarship granting program. Learn more about their contribution process here.
  • Alabama Opportunity Scholarship Fund. They also have a step-by-step guide to help donors. According to their website, their mission is to “empower families to choose the school that best fits their child’s unique educational needs.”

Let us all remember that the future economy of our state, in many ways, centers on the quality of education our state’s children receive. Under the Alabama Accountability Act, each of us has the opportunity to redirect a portion of our state income taxes to a better education for children in low-income families at no cost to us. Please be sure to share this article with your fellow taxpayers, and together we can raise the educational standards of our state!

Every situation is unique, be sure to consult your tax advisor before acting on these comments.

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Stewart H. Welch, III, CFP®, AEP, is the founder of THE WELCH GROUP, LLC, which specializes in providing fee-only investment management and financial advice to families throughout the United States.  He is the author or co-author of six books, including 50 Rules of Success J.K. Lasser’s New Rules for Estate, Retirement and Tax Planning- 6th Edition (John Wiley & Sons, Inc.); THINK Like a Self-Made Millionaireand 100 Tips for Creating a Champagne Retirement on a Shoestring Budget. For more information, visit The Welch GroupConsult your financial advisor before acting on comments in this article.



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