I have to admit, I think the State of Indiana does a lot right. Not everything, mind you; I think our roads were neglected for too long and now, after the gas tax increases over the past five years, it seems like every road is being repaired, all at once, making transiting the Region complicated and tedious sometimes.
What I do appreciate, however, was the fairly measured response to the COVID pandemic, the willingness to attempt educational choice and reform initiatives and some of the innovative programs related to supporting the organizations and charities improving the quality of life for our families and our communities.
Two of the most attractive state programs, in my opinion, both of which provide the opportunity for some financial and tax planning, are the CollegeChoice Indiana Plan tax credit and the Neighborhood Assistance Program, or NAP, credit.
A tax credit is the most attractive type of tax benefit afforded by the government, because it enables a dollar-for-dollar reduction or offset in a taxpayer’s tax liability. Unlike a deduction, which simply excludes a portion of income from taxes, credits are used like actual payments, in that a $100 tax credit will actually reduce the tax bill by $100.
For tax year 2023, the State of Indiana expanded the tax credit available for Indiana taxpayers who contribute to the CollegeChoice Indiana 529 plan. Indiana taxpayers making contributions to a CollegeChoice 529 account may now qualify for a 20% tax credit on up to $1,500 ($750 for married filing separately). Which enables them to qualify for the credit on up to $7,500 of deposits into a CollegeChoice Indiana plan.
The credit is qualified per tax return, not beneficiary or account owner. This means, assuming all are Indiana residents, parents can set up and own a 529 account for a child, and both parents and other family members may contribute to the plan independently and claim the full credit for their separate contributions, up to an aggregate of $7,500 per year, per return.
529 plans can be a little complicated and I find investors often have misperceptions about these products, so I suggest getting some advice and education on how, and which, plan bests suits the planning needs of each family.
Perhaps my favorite Indiana tax benefit, however, is the Neighborhood Assistance Program tax credit, or NAP. Indiana awards $2.5 million for distribution by Indiana not-for-profit organizations serving our communities. The NAP program may qualify Indiana taxpayers to receive up to a 50% tax credit when donating to a NAP charity in this specific program. This means a $1,000 donation would qualify for a $500 Indiana state tax credit, directly reducing Indiana state tax liability by $500. The donation may also be eligible for a federal tax deduction for those who itemize, enhancing the tax benefit of the donation even more, for some taxpayers up to roughly 87 cents on the dollar.
Not all organizations are awarded NAP credits, and those who are awarded have only limited supply. In order to receive a NAP credit, the donor must donate specifically for the purpose of the NAP program, which involves communicating with the charity and filling out a state form. In late August, many of these credits have already been allocated by the non-profits receiving them, so those attracted to this great program should reach out soon.
Some of the great non-profits in the Region I am aware that were awarded NAP credits and may have some left to allocate are Habitat of Humanity in Lake and LaPorte counties, Opportunity Enterprises in Porter County, Housing Opportunities in Porter County, The Humane Society in Hobart, Meals on Wheels in Merrillville and Sojourner Truth House in Gary. all of which do a great job improving lives and communities in Northwest Indiana.
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. Stock investing includes risks, including fluctuating prices and loss of principal. No investment strategy can guarantee a profit or preserve against loss. Past performance is not a guarantee of future results. This material may contain forward looking statements; there are no guarantees that these outcomes will come to pass.
Marc Ruiz is a wealth advisor and partner with Oak Partners and registered representative of LPL Financial. Contact Marc at marc.ruiz@oakpartners.com. Securities offered through LPL Financial, member FINRA/SIPC.
