S-Corporations and LLC Taxed as S-Corps

You can participate in this program even if you are a pass-through organization, where all of your taxes are paid by your shareholders.

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With this program your tax liability can be turned into scholarships providing much needed assistance for low income or disabled/displaced kids attending private schools in Arizona.  Because it is a dollar-for-dollar credit against taxes your shareholders would normally pay to the state; it doesn’t take away from your bottom line or other philanthropic programs you are involved with.

Arizona Tax Credit Program Facts

  • The S-Corp makes a donation to Arizona Tuition Connection.
  • Arizona Tuition Connection is a state approved, non-profit, School Tuition Organization (STO) that works with all qualified private schools in Arizona.  EIN #46-1879761
  • Minimum donation of $5,000.00.
  • Tax credit is available to an S-Corp as defined in Section 1361 of the Internal Revenue Code, and LLC’s taxed as S-Corps for federal and state purposes are eligible to make a donation for the tax credit.
  • The donation must be made from the S-Corp to the STO.
  • The S-Corp makes an irrevocable election to pass a pro-rated share of the credit, based on the individual’s ownership interest, through to its individual shareholders to claim as a credit on their individual income tax return.   Unused tax credits can be carried forward for 5 years.
  • Any prorated share of the credit that would be distributed to non-eligible partners or estates or trusts are lost.
  • Donated funds are used to provide much needed tuition scholarships for low-income and disabled/displaced families attending K-12 private schools in Arizona. The state has specific guidelines and regulations surrounding the distribution of these funds. Details of which we will gladly provide.
  • The state has a cap of $123,042,188 in low-income and $5 million in Disabled Displaced corporate donations for the 2020 tax year.
  • The window to take advantage of these tax credits opened July 1st, 2019, and will close when the cap is met.
  • If they choose, corporations may recommend a school to receive their donations.  However, the corporation’s shareholders may not directly benefit from the donation.

 

About Arizona Tuition Connection:

We are not tied into any single school, denomination, or organization.  We work with every qualified school in the state.

 

Steps to Donating

  1. Identify your company’s corporate income tax liability and determine how much you would like to donate versus pay to the state this fiscal year.
  2. Contact Tim Kuhn by email at tim@arizonatuitionconnection.com, or by phone at 480-409-4106.
  3. On July 1st, Arizona Tuition Connection will file a one-page form with the Department of Revenue (ADOR), asking for approval for the donation/credit.
  4. Once approval has been received from the ADOR, the donation amount must be provided to Arizona Tuition Connection from the corporation within 20 days.
  5. When you file your company’s taxes, you will take the corporate income tax credit on the Standard 120 Form and file a 335 Form as well, listing the credit amount.

 

S-Corp Reporting Requirements

  • The S-Corp can pass the credit onto their shareholders based on the ownership interest in the corporation.
  • The S-Corp does not need to have tax liability in order to pass the credit onto shareholders.
  • The S-Corp will pass the credit onto the shareholder at the end of their fiscal year/tax year.  The individual shareholder would claim the credit on their tax return for the year in which the S-Corps fiscal year ends. The individual taxpayer would claim their share of the credit in the year the taxes are passed through.
  • For low-income corporate donations – Form 335 and Form 335-S will be completed by the S-Corp and submitted with their 120-S. A copy of Form 335-S is also to be forwarded to the shareholders.
  • For disabled/displaced corporate donations – Form 341 and Form 341-S will be completed by the S-Corp and submitted with their 120-S. A copy of Form 341-S is also to be forwarded to the shareholders.

 

Individual Shareholder Reporting Requirement

  • There is no limit on the low-income or disabled/displaced credit claimed by the individual taxpayer. If the taxpayer’s share of the S-Corp credit is $3,000 then their credit will be $3,000.
  • For low-income corporate donations – Form 335-S will be completed by the S-Corp and forwarded to the shareholders. The individual taxpayer will claim their share of the credit on Form 335-I.
  • For disabled/displaced corporate donations – Form 341-S will be completed by the S-Corp and forwarded to the shareholders. The individual taxpayer will claim their share of the credit on Form 341-I.
  • These new credits will not impact the individual taxpayer’s ability to claim the original or switcher individual credits.
  • An individual taxpayer can claim this tax credit in addition to other individual tax credits they may be participating in.
  • The individual taxpayer may carry forward any unused credit for 5 years.
  • For disabled/displaced corporate donations – Form 341 and Form 341-S will be completed by the S-Corp and submitted with their 120-S. A copy of Form 341-S is also to be forwarded to the shareholders.

 

Have Questions?  Call us!  We are available.