Montana Endowment Tax Credit
Our state lawmakers understand the importance of endowments and their long-term impact in meeting the charitable needs of our state. That’s why the Montana Endowment Tax Credit was enacted in 1997, and extended by the 2013 Legislature through 2019.
The law encourages donations to qualified endowments at a Montana charity (such as those at the Foundation). There are significant tax savings (up to $10,000) for Montana businesses and individuals that pay Montana income tax. If you aren’t aware of the credit, here are the basics.
For businesses, a direct gift qualifies for a 20% tax credit. So, on a $10,000 gift from a business, a credit of $2,000 is available on the Montana tax return, reducing the “cost” of the gift to $8,000.
For individuals, the credit is higher–40%–but the gift must take the form of a qualified “planned gift.” By far, the majority of Montanans accessing this valuable credit do so through a deferred gift annuity (see explanation below).
The Montana Endowment Tax Credit is a valuable tool. It may sound complicated, but the Foundation makes it easy. With the minimum gift annuity amount of $2,500, many households can participate. Let us help you access these tax savings while providing perpetual financial support to the Catholic ministries you love.
How a Deferred Gift Annuity Works:
John and Jane Smith*, age 71 and 68, donated $25,000 to the Foundation through a deferred gift annuity to benefit their parish endowment fund. Since they wanted to maximize tax savings, annuity payments to the Smiths were deferred far into the future.
The numbers played out as follows:
* Federal tax deduction: $22,210 (based on actuarial calculations and tax laws)
* Montana Endowment Tax Credit: $8,884 (40% of the federal tax deduction)
* The Smiths’ “cost” of the $25,000 gift nets to $10,564, after federal tax savings of $5,552 (assuming a 25% federal tax bracket) and Montana tax savings of $8,884.
At an annuity rate of 5%, the Smiths will receive annual payments of $1,250 beginning at ages 89 and 86 for the rest of their lives. After their lifetime (or if they voluntarily cancel the annuity during their lifetime), the value of the annuity is permanently endowed for their parish.
If they wanted or needed annuity income immediately, the rate, deduction, and credit amounts would change significantly. Information on annuities that provide income to the donor immediately can be found HERE.
To learn more about the Montana Endowment Tax Credit, read the MontGuide on this subject prepared by the Montana State University Extension – available HERE.
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Gift Annuity Calculator.
*names changed. Minimum charitable annuity gift amount is $2,500. This information is not intended as tax advice; please discuss with your tax advisor.