Overview of the Innovation Fund Foundation Tax Credit

One of the primary focuses of a tax CPA is finding available tax credits for clients. If you’re not familiar with the difference between tax credits and tax deductions, the simplest explanation is that tax credits reduce your tax liability (the amount you owe and pay the government), while tax deductions reduce your taxable income (the amount the government uses to calculate your tax liability).

For example, if you have $100,000 in taxable income and give $5,000 to charity, you could receive a tax deduction of $5,000, meaning your taxable income is now $95,000. If your tax rate is 25%, instead of $25,000 of tax liability on $100,000 of income, the deduction reduces your tax liability to $23,750 on $95,000 of income—ultimately giving you a tax savings of $1,250.

However, a tax credit is a dollar-for-dollar tax savings, not a deduction from your taxable income. In this same scenario you have $100,000 in taxable income with a 25% tax rate, but instead of a tax deduction of $5,000, you have a $5,000 tax credit. Now, you can lower your tax liability from $25,000 to $20,000—effectively reducing your taxes by $5,000.

You might say, from a cash perspective, you still paid that $5,000 somewhere. Though true, one of the perks of certain tax credits is they allow a sort of “self-directed” tax. This means that you, as the taxpayer, get to decide through your tax credit where your dollars are allocated. This brings us to the Innovation Fund Foundation (IFF) tax credit.

Starting at the beginning of 2018, individuals and corporations who donate to the IFF can receive a Georgia state tax credit. Only $5,000,000 in IFF tax credits are available per calendar year, and they are allocated on a first come, first served basis tied to the date your application is received. Individuals can donate up to $1,000; married couples can donate up to $2,500 jointly or $1,250 per person if filing separately. C corporations can generally donate up to 75% of their tax liability, while LLCs, S corporations, and partnerships can donate up to $10,000. There are additional rules surrounding corporation limits, so please consult your tax advisor before donating.

What is the Innovation Fund Foundation (IFF)?

The IFF is a 501(c)3 non-profit organization which works with the Governor’s Office of Student Achievement (GOSA). Its mission is “to improve student achievement in Georgia by funding innovative partnerships to redesign public education.” The Innovation Fund is currently focused on investing in innovative programs in, among other things, teacher and leader development for high-need schools and blended and personalized learning. It also works with the Governor’s Honors Program for gifted and talented high school students. To achieve its goals, the fund makes grants to Georgia public schools, prioritizing those which historically fall into the bottom 5% of performance.

How do You Claim the IFF credit?

There is a five-step process to claiming the IFF credit. Required forms are available on GOSA’s website, which includes more detailed instructions.

1. Create an account with the Georgia Tax Center.
2. Request pre-approval by submitting Form IT-QED-TP1 to the Georgia Tax Center.
3. Within 60 days of receiving pre-approval confirmation, mail your donation check to the Innovation Fund Foundation.
4. You’ll receive Form IT-QED-FUND1, which confirms your donation; keep this form for your records.
5. Complete and submit Form IT-QED-TP2 with your Georgia tax return and claim the credit.

Why Should I Go Through the Trouble?

This credit is perfect for people who have a passion for education and want their tax dollars to go towards increasing educational grants across the state of Georgia. The credit is also a good option for people who want to control how some of their tax dollars are spent by allocating them to specific Georgia foundations rather than just the general tax fund.

Are There any Limitations?

Yes, one of the limitations is you currently cannot deduct the donation on your federal tax return, based on proposed IRS regulations from August 2018. Additionally, you can be disqualified if you, as the taxpayer, directly or indirectly designate the donation for the direct benefit of any school or program your child attends. If you are disqualified from this program you may be eligible for the Georgia GOAL Scholarship Program tax credit, which allows you to direct the funds to a specific school, including the one your child attends.

Ultimately, the IFF tax credit presents a unique opportunity for Georgia taxpayers to support Georgia public schools directly and receive the full amount of their donation as a credit rather than just a tax deduction. Though 2018 is quickly coming to a close, the IFF tax credit runs until 2023, providing plenty of time to apply in future tax years.