Has your nonprofit organization, or one of its programs or initiatives, been approved as a Colorado Enterprise Zone Contribution Project? And are you taking full advantage of the Colorado Enterprise Zone Contribution Tax Credit in your fundraising appeals during this year-end giving season? If not, read on … because you may be doing a disservice to your organization and prospective donors!
Under the Colorado Enterprise Zone program, a donor who makes a contribution to a pre-approved Colorado Enterprise Zone Contribution Project may claim a Colorado income tax credit of up to 25 percent of the amount of his or her donation. This dollar-for-dollar credit against Colorado state income taxes can be claimed by the donor in addition to any federal or state income tax deduction. If the donor can make all or part of the gift with appreciated stock (held for at least one year), he or she will also receive the added benefit of being able to deduct the full value of the stock, without having to recognize and pay income tax on the built-in capital gain. So, this coveted tax credit may just be the frosting on the cookie you need to entice year-end gifts your way!
The amount of the tax credit is 25 percent for monetary contributions and 12.5 percent for in-kind contributions—including stock. However, did you know there is a way for in-kind contributions to qualify for the full 25 percent credit?
The Colorado Department of Revenue regulations provide, for combined monetary and in-kind contributions, the credit is the lowest of the three following amounts:
1. a basic limitation of 25% of the combined value of cash plus in-kind contributions; or
2. 100% of the cash portion of the contribution plus the smaller of
a) 12.5 percent of the combined value of the cash and in-kind contribution or
b) $50,000; or
3. $100,000. [Reg. 39-30-103.5]
Translation: a donor can claim the full 25 percent tax credit on the total gift—the monetary and in-kind contributions—so long as the monetary contribution is at least 12.5 percent of the total gift.
Using the worksheet developed by the Department of Revenue in its FYI Income 23 publication on Colorado Enterprise Zone Contribution Tax Credits, the following table demonstrates how this calculation works in the context of a total gift of $50,000, consisting of $6,250 (or 12.5%) of cash and $43,750 (or 87.5%) of stock:
CONTRIBUTION CREDIT COMPUTATION SCHEDULE
1. Amount of cash contributions. $6,250
2. Value of in-kind contributions. $43,750
3. Total of lines 1 and 2. $50,000
4. Smaller of $100,000 or 25% of line 3. $12,500
5. Limitation on in-kind credit, 50% of line 4. $6,250
6. Allowable in-kind credit, smaller of lines 2 or 5. $6,250
7. Limitation on cash credit, line 4 minus line 6. $6,250
8. Allowable cash credit, smaller of line 1 or line 7. $6,250
9. Total credit, line 6 plus line 8. $12,500
In the case of a donor who wants to make an in-kind contribution of certain property with a specified value, the amount of monetary contribution needed to qualify the entire gift for the 25 percent credit is equal to 1/7 of the value of the in-kind contribution.
There are a number of limitations and rules that apply to the Enterprise Zone Contribution Tax Credit, which are important to consider when working with a donor, such as:
- The donation must be made to a pre-approved Colorado Enterprise Zone Contribution Project.
- The donation must, in fact, be used for purposes that are directly related to job creation, job preservation or assistance programs for the homeless (in other words, it should be documented and administered as a restricted gift).
- The donor must receive a certificate from the Enterprise Zone Administrator attesting to the value and use of the contribution.
- The donation cannot be used for a purpose that directly benefits the donor.
- The credit amount cannot exceed the donor’s Colorado income tax liability (although unused credits may be carried forward for five years).
- No more than $100,000 of credits can be claimed in any given year (credits in excess of this may not be carried forward).
Caution: although you want to be helpful and alert donors to this opportunity, it is also important to avoid giving them personal tax advice. Consider, instead, referring them to their own personal tax advisers, the Colorado Department of Revenue FYI Income 23 publication on Colorado Enterprise Zone Contribution Tax Credits, or the Colorado Office of Economic Development website. You may also refer them to this blog. So get out there and raise some money!