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Year-end planning and the Iowa School Tuition Organization Credit

December 28, 2009

There isn't much time left in your 2009 year-end planning, but there is still time to save some real money this year. If you feel charitable towards private elementary schools, the Iowa School Tuition Organization Tax Credit makes makes certain donations to fund private elementary schools nearly free, after tax.

The STO credit is a 65 percent state tax credit. While there is no Iowa charitable deduction for STO donations, the federal deduction is unaffected. Here's how it works for a hypothetical top-bracket non-AMT Iowa taxpayer (ignoring phaseouts) in dollars and cents for a $100 gift -- a net cost after tax of $10.73:

There is a catch: Iowa limits the annual amount of gifts eligible for this credit. If the credit is oversubscribed, you may not get a full credit. Your STO may be able to give you some guidance on whether there is still room for the full credit this year. Here are some to choose from:

Iowa Lutheran School Tuition Organization
SouthEast Iowa Tuition Organization
Heart of Iowa STO
Catholic Tuition Organization

While these credits may be less than ideal from a policy standpoint (the Tax Update is more of a voucher fan), you go to war with the tax law you have. If this is where your charitable inclinations lie, the Iowa STO credit makes contributions to student tuition organizations a tax-efficient way to go.

As the decade winds down, wind down with the Tax Update's 2009 year-end tax tips!

Tags: year-end tax planning.