Tax Planning With Donation-Based Tax Credits: What You Need to Know

If you’re looking for a way to lessen your tax burden, you might want to consider tax credits. Whether or not such credits will be included in your tax-planning strategy depends on several factors, so it’s wise to consult with tax and accounting professionals about your particular situation. In the meantime, understanding which tax credits are available — and how they support funding needed for law enforcement foundations, rural hospitals, and student scholarships in Georgia — may help you decide which path is right for you.
Law Enforcement Tax Credit
On May 9, 2022, Georgia Governor Brian Kemp signed Senate Bill 361, The Law Enforcement Strategic Support Act, into law. It allows Georgians and corporations to receive a tax credit for the donations they make to support local law enforcement foundations. Tax credits are capped at $5,000 per individual and $10,000 per married couple. Corporate donations are capped at 75% of income tax liability.
The new law makes $100 million a year available in state income tax credits to Georgians while helping police departments provide bonus pay to officers and make other improvements. These funds can be used to train officers, purchase or maintain equipment, or go toward establishing a mental health co-responder program. To help ensure police departments across the state benefit from the law enforcement tax credit, a single police foundation cannot receive more than $3 million per year.
Rural Hospital Tax Credit
The Qualified Rural Hospital Organizational Credit (QRHOC) encourages the reallocation of Georgia tax dollars to help struggling rural hospitals receive much-needed funding. Although Senate Bill 258, the original legislation that went into effect in 2017, allowed for only individual taxpayers to receive the credit, changes have since been made.
Now owners of pass-through entities are allowed to qualify as eligible contributors, the tax credit percentage has increased from 90% to 100%, and the tax credit has been extended through 2024. Additionally, maximum credit limits on non-corporate contributions to rural hospitals after June 30 of each year have been removed. So, as long as tax credits are available, individual taxpayers may make unlimited contributions to rural hospital organizations for a corresponding Georgia income tax credit.  
Every year the state provides a list of hospitals it has determined are eligible to receive donations. The QRHOC provides a dollar-for-dollar reduction in Georgia income tax and a federal charitable donation deduction. Expect to engage in an application process since the credit is currently capped at $60 million per year. The cap will increase to $75 million in 2023.
If you pay Georgia income taxes, you are eligible to receive a 100% state income tax credit for contributing to your designated rural hospital organization, as follows:

  • Individual filer — up to $5,000
  • Married filing jointly — up to $10,000 
  • C corporation, trust, or pass-through entity electing to pay tax at entity level — up to 75% of Georgia tax liability
  • Individual owner of S corporation, LLC, or partnership (pass-through entity) not paying tax at entity level — up to $10,000
Qualified Education Expense Credit 
Similar to the law enforcement and rural hospital tax credits, the qualified education expense credit allows a dollar-for-dollar credit for donations to student scholarship organizations that help Georgia’s children attend private schools. Individuals and corporations can receive the credit for up to 100% of their contributions.
Tax credits are part of a comprehensive tax-planning strategy. In the case of the credits mentioned here, you can choose where your tax dollars go — and help support your fellow Georgians. To learn more about how you can receive one or more of these tax credits and for customized advice, contact our firm at 678.205.5278.
About the Author:
Cloe Richelle, CPA, JD, joined CB Smith & Associates as a senior tax manager in 2020. She specializes in business and individual taxation, trusts, and estates. She holds a master’s degree in accounting with taxation emphasis from the University of New Orleans and a Juris Doctor from Loyola University. Cloe is a member of the American Institute of CPAs, The Georgia Society of CPAs, and the Louisiana State Bar Association.