The Tax Cuts and Jobs Act liberalized the rules for depreciating business assets. However, the amounts change every year due to inflation adjustments. And due to high inflation, the adjustments for 2023 were big. Here are the numbers that small business owners need to know.
The Alabama Accountability Act allows Alabama taxpayers and businesses to contribute to Scholarship Granting Organizations to claim a dollar-for-dollar tax credit for 100% of their Alabama tax liability. The limit to the credit for individuals is $100,000. Businesses can also reserve a tax credit for 100% of their total tax liability with no dollar limit. The credit can be carried forward for three years. The mission for these organizations is to provide scholarships to low income students to attend public and private schools in the state.
Please see this example from Scholarship for Kids of how this donation can be a business expense AND a state tax credit:
Here are the 4 steps to reserving your credit and making the payments:
- Create an account at myalabamataxes.alabama.gov if you don’t already have an account.
- Reserve your desired credit amount on your My Alabama Taxes account. It is important to note that there is an annual limit of $40,000,000 on the total amount available for reserve. In other words, the credit could potentially “run out” if you wait to reserve your credit.
- Once you have reserved your credit, you or your company can contribute to the Scholarship Granting Organization of your choice. For a list of approved organizations visit this link.
- Keep your receipt of donation from that organization for tax return preparation purposes to give to your accountant and to keep for your records.
For further guidance on steps 1 and 2, visit this link.
consult a professional
It is important to consult a professional when determining whether this credit is right for you or your company. It is a good option for businesses that have strong revenue forecasting capabilities that consult with their accountant about their tax liability prior to reserving a credit and making the donation. If you have questions, reach out to your tax advisor at Aldridge Borden or Lakeshia King.
Author: Lakeshia King, CPA