Alabama Accountability Act – Tax Planning Opportunity for You

by Todd Hindsman, CPA

Under the Alabama Accountability Act (AAA), taxpayers have the opportunity to receive a tax credit for up to half of their state tax liability (capped at $50,000). This is accomplished by gifting money to a Scholarship Granting Organization (SGO) who then distributes the funds to non-public schools throughout the state. As a result of the recently signed tax law, taxpayers are now severely limited in the amount they can deduct for state and local taxes (deduction cap is now $10,000).

The benefit for applying for a credit under the AAA program is that on your Federal return, the amount paid for AAA is a charitable deduction instead of a state tax deduction. Unlike the state tax deduction, charitable deductions generally are not limited and are fully deductible. Additionally, since any amount you contribute reduces your state tax liability, you may consider reducing your planned state withholding or estimated tax payments by the same amount.

This is a valuable benefit for those who take advantage of this. Note: the state allots a specific amount ($30,000,000), and we expect the allotment to be reserved quickly. Therefore, we would encourage you to act quickly, if interested, before the opportunity is gone.

Consider the simplified example below for 2018 – your benefit could be higher or lower based on the amount you choose to reserve and your 2017 State of Alabama tax liability.

No AAA Contribution:
State tax liability:                                $20,000
Property taxes:                                      $5,000
Total state and property taxes:        $25,000
Maximum state and property tax
deduction on Federal return:            $10,000

With AAA Contribution of $10,000 (50% of state liability):
Total state and property taxes:         $15,000
Maximum state and property tax
deduction on Federal return:            $10,000
Federal charitable contribution:       $10,000
Federal deduction:                              $20,000 ($10,000+$10,000)
Reduction in Federal taxable
income:                                                  $10,000 ($20,000-$10,000)
Tax savings at 35%:                               $3,500

STEPS TO MAKE A CONTRIBUTION TO A QUALIFIED SCHOLARSHIP GRANTING ORGANIZATION (SGO) IN ALABAMA

PART 1: Creating a My Alabama Taxes Account

If this is your first time to claim an income tax credit, you will need to create a My Alabama Taxes (MAT) account through the Alabama Department of Revenue Website. www.ador.alabama.gov.

*If you have claimed credits in the past, you can skip this step and log in with the username and password you have already established.

Things you will need before you can set up a MAT account and get started: – Your social security number – Your Alabama Adjusted Gross Income (AGI) from your previous year’s state tax return.  Your federal AGI will not work.

Step 1: Go to myalabamataxes.alabama.gov and click NEW USER? SIGN UP HERE button below the sign in button.

Step 2: From the drop-down box, scroll down to choose INDIVIDUAL INCOME TAX and add your social security number and your previous year’s Alabama AGI.

Step 3: Choose a username, password, SECRET QUESTION and SECRET ANSWER.

Note: Please record your username and password and keep it somewhere safe, you will need this again next year.

Step 4: Enter your personal contact information.

Step 5: Determine whether or not to allow others to access your accounts. If you use a CPA or professional accounting firm, you will probably want to allow them access to your account.

Step 6: Before you leave the final screen, we suggest you print the final confirmation screen with your login details or write them down somewhere for safekeeping. You will receive an email or text with an Authorization Code that you will need the first time you log into the MAT system. You are now done with the ADOR MAT registration process.

PART 2: Registering your donation with a state-approved SGO.

To claim your tax credit, you will be using your My Alabama Taxes (MAT) portal on the Alabama Department of Revenue website.

Step 1: Go to myalabamataxes.alabama.gov. Sign in using your personal username and password. You will be prompted to enter the Authorization Code that you received in order to sign in.

Step 2: Once you are signed in, click on DONATE TO SGO from the menu on the right-hand side of the page.

Step 3: Enter your personal information and select your preferred SGO from the drop-down list. Make sure to enter the exact dollar amount of your donation.

Step 4: PRINT YOUR CONFIRMATION SCREEN AND MAIL YOUR CHECK THE SAME DAY. IMPORTANT NOTES ABOUT CHECKS: Checks must be for the same amount as the donation amount entered on MAT and must be written from your personal account.