From hospitals to movies, Ga. offers some unique tax credits

The state of Georgia is offering a couple unique opportunities to receive tax credits and at the same time do something positive for the local economy.

Georgia Heart Hospital Program

The first is the Georgia Heart Hospital Program, which is expected to continue at least through Dec. 31, 2019.

Through this program, Georgia taxpayers can contribute to a qualified rural hospital organization (a link to those qualified hospitals is here), and in return, receive a charitable contribution deduction on federal  tax returns and a state credit on Georgia income tax returns.

There are limits to this credit. For single taxpayers, the credit is limited to 90 percent of the amount contributed or $5,000 per tax year, whichever is less. This means if you want to get a credit of $5,000, you will need to contribute $5,556, as you will lose 10 percent of the contribution due to the 90 percent limitation. For married filing joint taxpayers, it is the same 90 percent of the contribution or $10,000, whichever is less. C Corporations and trusts are also qualified for this credit, with a similar rule, lesser of 90 percent of contribution or 75 percent of your Georgia income tax liability.

This credit is similar to the Georgia GOAL scholarship, and has similar tax rules. The credit on your Georgia tax return cannot exceed your Georgia tax liability; however, you can carry forward any used amount of credit for up to 5 years.

Georgia Film Tax Credit

The second tax credit offered by Georgia is one that takes advantage of the booming film industry in the state.

According to a recent article in Georgia Trend magazine, FilmL.A. Inc., the official film office in Los Angeles, states that Georgia is the No. 1 filming location in the world. The magazine reports that the film industry has generated $9.5 billion in economic impact in the 2017 fiscal year, including $2.7 billion in direct spending. This represents a trend of continued growth in recent years.

One of the reasons for the success of the filming industry in the state is the Georgia Film Tax Credit law that first went into effect in 2005 and has been expanded since then.

For every qualified expense that a production company incurs and that is purchased from a Georgia vendor, the production company receives a percentage of that expense as a credit. This credit can reduce their Georgia tax liability. However, since most production companies are based in other states and therefore don’t have any Georgia income, they cannot use these credits. Georgia offers a solution that helps those production companies, and, in turn helps Georgia taxpayers.

These production companies can sell their credits at a discounted rate to other taxpayers, both businesses and individuals. The production companies hire accountants to prepare all the specific forms and documentation required by the state. The state of Georgia audits this information and approves the credit if all is correct. Once this is approved, the company uses brokers to sell the credits to taxpayers.

These tax credits are more beneficial to taxpayers with high Georgia tax liabilities. For example, if your Georgia tax liability is $1,000 before withholdings or credits, you could buy film credits for $920, which would save you just $80. If, on the other hand, you have a Georgia tax liability of $100,000, you could buy film credits for $92,000, and save $8,000. Brokers can sell the credits in various amounts, although they usually do not sell blocks of credits of less than $20,000 per taxpayer.

The tax credits are becoming more valuable as the film industry continues to grow. When film credits were just becoming popular, companies would sell them for around $0.88 per $1. Now, as they are in high demand, the average price is around $0.92 per $1.

Film credits are nonrefundable and have no limitation, other than your total state tax liability. These credits can be purchased at any time, even after the tax year has ended. Film credits also eliminate penalties and interest on tax liabilities. As a result, some taxpayers can stop state withholding and estimated tax payments, purchase film credits and write one large check – and be done with their state tax, all while saving some money.

You also receive a deduction on your federal tax return (on Schedule A) for the full value of the credit, not just the amount paid. This deduction is taken in the year the credits are purchased. The only catch is that you will pay capital gain tax rates on the difference between the purchase price and total amount of credits; however, for most taxpayers, the capital gain rate is less than the ordinary tax rate, so you still save money.

Please let us know if we can help you take advantage of either of these tax credits.

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