Frequently Asked Questions
Heritage Christian School parent and Ronald Blue Trust Senior Private Wealth Advisor, Layne Hoekema, answers some of the most common questions regarding the Scholarships for Education Choice (SGO) program.
How is the SGO program beneficial to donors?
LH: It is one of the very few tax planning tools available to a resident of the state of Indiana that is not otherwise a business owner. For those inclined to support private education, it creates a credit against the Indiana (not county) tax liability. The credit is equal to 50% of the amount contributed, essentially allowing you to increase your giving by 2x with no more out of pocket cost than when you made a gift without using the program!
What examples have you seen of donors benefiting from giving to the program?
LH: Many donors that would normally pay Indiana tax (including those living outside of Indiana but with Indiana property) do not because the credit fully offsets the liability.
Do all tax professionals know about the program? If not, why not?
LH: I am surprised by the number of tax and finance professionals that do not know about the program, however, the number is growing. Those tax professionals that do not know about the program, are often more reactionary practitioners than proactive or they simply feel like a conversation about charitable giving is off limits with their clients. However, wouldn’t you be disappointed in your tax advisor if you could gift HCS $1,000 and it would only cost you around $250?
What process should a donor think through if they want to give to the program?
LH: First, a donor should have the passion and intent to benefit K-12 students in Indiana. Then they should think about their Indiana tax liability. This is a guide for how much to contribute to the program. A donor should consider whether they can give appreciated investments (stocks or other property) to the Scholarship Granting Organization (SGO) rather than cash as this may allow the donor to bypass capital gains taxes that they may otherwise owe when they sell the investment. Finally, the donor can consult their advisor to complete the gift form or go online to the website to make the gift on their own.
What paperwork is required?
LH: The donor can start with a very simple form found at scholarshipsforeducationchoice.com/donors. From this page you can start the gift of cash or an investment. Your financial advisor will be necessary to assist with the transfer of an investment. The link will help you with starting that conversation with your advisor.
Can I be creative in the way I donate to the program (i.e. giving non-cash assets)? What is allowed?
LH: Yes. I think the most creative way is to consider the use of investments rather than cash, especially investments that you are already planning to sell that would otherwise trigger a tax liability. In fact, you could even consider a gift of more than your liability because the credit carries forward for up to 9 years. Also, please make sure that you understand that you don’t need to be an Indiana resident to benefit, you only have to owe Indiana tax. If you are expecting a spike in income from a bonus or a business sale, it is a very advantageous time to consider a gift because you are probably in a higher than normal Federal Tax bracket that gives you benefit. Finally, business owners may want to consider making this contribution at the business entity level.
How does the new 2018 tax code impact how I might use SGO giving?
LH: Some individuals are no longer going to itemize their deductions for Federal tax purposes (unless deductions exceed $24,000). However, they will still get the benefit of this credit against their Indiana tax. No gift is too small! If you do have enough itemized deductions (>$24,000) for Federal tax purposes, you need to also be aware that this charitable deduction will be reduced by the amount of the credit you receive from the state.
Are there advantages for seniors?
LH: Yes, those over 70 ½, can contribute their Required Minimum Distribution from their IRA to the SGO and bypass the income they would otherwise need to claim and still receive the 50% Indiana tax credit.
Why did Indiana launch this program and why does it keep expanding it?
LH: I think it really comes down to providing Indiana residents the opportunity for school choice. However, this program, rather than being funded fully by taxpayers, is funded 50% by donors.
The information provided herein is educational in nature and is not intended to be individual advice. Ronald Blue Trust, a division of Thrivent Trust Company, and its employees and affiliates do not provide legal or accounting advice or service. Please consult with a professional advisor familiar with your particular situation for advice concerning specific investments, accounting, tax, legal, or other matters before taking any action. Ronald Blue Trust is a division of Thrivent Trust Company. 8018801-12-18