Preface: Education is what remains after one has forgotten what one has learned in school. — Albert Einstein
Educational Improvement Tax Credits with Special Purpose Entity (SPE)
Pennsylvania’s Educational Improvement Tax Credit (a.k.a. EITC Program) is a tax credit-based program that provides charitably inclined individuals and businesses to give educational support to qualifying Pennsylvania private schools in the form of a tax credit.
These Pennsylvania tax credits are obtained from donations to a qualifying educational organization through an approved EITC vehicle. For example, with an EITC contribution, qualifying individuals and businesses can receive PA tax credits up to 90% for their qualifying and approved organization charitable contributions, so a $3,000 donation can give you a $2,700 credit towards your Pennsylvania income taxes.
Often, too many qualifying businesses do not capitalize on the opportunity to encourage funding the future of local schools and aspiring students with this special Pennsylvania tax credit. While the EITC Program has been available in Pennsylvania for more than a decade, recent revision provides these qualified credits with a simplified Special Purpose Entity investment.
A Special Purpose Entity is a pass-through partnership established solely to make contributions to schools through Pennsylvania’s Educational Improvement Tax Credit (EITC) program and distribute the tax credits received to its members.
There exist several Special Purpose Entity (SPE) participation opportunities that comprise a partnership K-1 investment that confers members the chance to obtain a credit that begins with an investment threshold of around $3,000. Therefore, SPE investments are ideal for taxpayers with $100,000 or more of taxable Pennsylvania income.
Additionally, there is a minimal barrier to entry for approval to participate in an SPE for an EITC credit. The process includes a one or perhaps two-page application where you designate the school(s) you wish to fund and the donation amount applicable to each. Once your application is approved, the SPE will communicate expectations of when they request the contribution check.
Following the end of the calendar year, SPE members obtain Federal and State K-1 forms, as with any partnership interest. The Federal Form K-1 shows your investment and Federal charitable contribution amount of the 10% of non-qualifying credit payment. In addition, the PA K- 1 allocates members a 90% PA tax credit, filed on a members PA-40 as other credits.
Who can join SPEs?
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- Legal entities and individuals who are owners or employees of an LLC, partnership, or corporation (but not sole proprietorship)
- Individuals who own stock in any public company registered to pay tax in Pennsylvania2
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What are the benefits of joining the SPE?
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- Receiving 90% of your contribution as a Pennsylvania tax credit;
- Being able to direct your contribution to a private Pennsylvania school;
- Being able to contribute the amount desired as an individual rather than through business ownership percentage;
- Participate in the tax credit program in a Pennsylvania business partnership with out-of-state business owners who can’t benefit from the program.
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If you think an SPE investment is of interest to you, or would like more information on SPE participation or paying your Pennsylvania income taxes while funding private education, please contact our office.