State tax credits offset your SC tax liability dollar for dollar and can take the place of estimated tax payments and/or SC withholding. South Carolina offers several credits that not only benefit the taxpayer, but serve SC special needs students, start-up companies, and local businesses. While the below list below is far from all-encompassing, we wanted to feature a few credits that may be of interest to you.
South Carolina Exceptional Needs Credit
Exceptional SC is a 501(c)(3) organization that provides tuition scholarships to children with special needs to attend private schools of their choice. This program is desperately seeking your support. The financial impact of COVID-19 and other political factors have led to a shortfall in funding. As a result, ALL 2,800 students in this program are without tuition assistance at this time.
This credit is available to individuals and corporations who pay SC income taxes, and it provides a dollar for dollar credit against their SC income tax liability. The credit is limited to 60% of the individual/corporation’s tax liability. Any unused credit cannot be carried forward to future years but can be taken as a charitable contribution deduction. The program is campaigning to remove the 60% limit and allow for carryforward of any unused credits for 2021. The statewide cap of the credit is $12 million and, to-date, only $949,427.45 of the state cap has been utilized.
For those with appreciated securities, there is an effective tax strategy you may want to consider. This credit may be obtained with either a cash or stock donation. The SCDOR states that “if you donate appreciated stock, rather than selling it and using the proceeds to donate, you will save the capital gains taxes on the appreciation, assuming the stock has been held for more than one year.” This is a unique opportunity to utilize any appreciated stock to pay some of your tax liability for the current year. No Federal charitable contribution deduction is allowed for the donation if you are receiving the state credit.
To make a donation and learn more, please visit: https://www.exceptionalsc.org/
SCRA – Industry Partnership Fund (IPF)
The IPF was created in 2006 to fund the South Carolina Research Authority (SCRA) to assist in its mission in fueling the innovation economy in South Carolina. A contribution to the IPF allows for a dollar for dollar tax credit against SC income tax with no limitation. Any unused credit may be carried forward for 10 years. The maximum annual contribution is $250,000. For Corporations, the amount contributed can also be allowed as an ordinary business expense deduction for tax purposes since there are several marketing benefits provided to the companies who contribute to the program. The statewide cap of the credit is $8 million, and to-date, less than 50% of the cap has been reached.
A unique aspect of the SCRA credit is that a check may be submitted at the beginning of the tax year and dated to be cashed later in the year. This preserves your working capital for the year as well as reduces or eliminates the need for quarterly estimated payments.
To contribute to the IPF and learn more, please visit: https://www.scra.org/get-involved/contribute/
SC Angel Investor Credit
On May 26, 2020, the Angel Investor Credit was extended after sunsetting at the end of 2019. The credit program encourages investors to invest in start-ups in SC; thus, creating jobs and expanding the SC economy. The credit is equal to 35% of your investment, and the maximum credit allowed is $100,000 for a single tax year. The credit is taken up to 50% in the year of investment and the remainder of the credit may be carried forward for up to 10 years. Any credit that is not able to be used may be sold, exchanged, or transferred once. The statewide cap of the credit is $5 million.
There are a number of qualifications both for the start-up company and the investor. If you are interested in this credit, please review the qualifications that must be met for both the investor and the company via the SC TC-56 instructions: https://dor.sc.gov/forms-site/Forms/TC56.pdf. This credit requires pre-approval for both the company and the investor. These applications can be found on the SC SOS website: https://sos.sc.gov/online-filings/business-entities/high-growth-small-business-job-creation-act.
We are huge advocates for these programs and strongly encourage you to participate. However, we cannot assist with calculations, questions, or applications at this time due to our Fall deadlines. We suggest you consider using the Exceptional Needs or SCRA credits to pay your 2020 Q3 SC taxes. After our deadline season, please reach out to us and we can discuss further moves in conjunction with your year-end planning.
We hope you all remain safe and healthy.
The Lanning Group
