January 14, 2018

Charleston Post-Courier: An Abuse of Charitable Giving?

media mention

Under the new law, some wealthy South Carolinians may actually make a 37 percent profit, risk-free, by making charitable contributions to Exceptional SC, a nonprofit fund created by the state Legislature to administer scholarships to students with disabilities attending private schools.

South Carolina has been one of 10 states — including Alabama, Arizona, Georgia, Kansas, Montana, Oklahoma, Pennsylvania, Rhode Island and Virginia — where this new loophole has opened up.

In South Carolina, those donating to Exceptional SC can get a 100 percent credit toward their state income tax payment. In past years, this donation has not led to an additional federal income tax break because while they could claim their gift to Exceptional SC as a deduction, it also lowered their amount of state tax they they could deduct — so no net profit.

But the rewriting of the federal tax code effectively expands this shelter by capping the state and local income tax deduction, the report said.

“The provision in the new federal law that just took effect, on its face, doesn’t have anything to do with private schools or the charitable deduction even,” explained Carl Davis, the researcher who wrote the report.

“It’s all about the cutting back of the state income tax deduction.” Read more