I’m writing about Enterprise Zone Contribution Tax Credits. Now, there are several Enterprise Zone Tax Credits, but for today, I’m concentrating on those which more people can take advantage and that’s Contribution or what I call donations. There are two main reasons to take advantage of these credits:
1. Reduce the amount of taxes you need to pay to the state and maybe the federal government as well.
2. Promote and support economic development in the Enterprise Zone in which you live, and if you are reading this, it’s probably the Kiowa County Economic Development Enterprise Project.
In the case of these Contribution Tax Credits, it’s been set up in Colorado to be a better deal than making an ordinary donation to some other organization, 25% of what you donate can be subtracted off what you owe the state in fact. Before we go on, it usually comes up in conversation, “How can a 25% tax credit be better than the 100% deduction that I can take now?” I love that question because the answer is within the question itself. Deductions are subtracted out BEFORE the tax owed is calculated, while the tax credit is subtracted out AFTER the tax owed is calculated. So even though the credit it ‘only’ 25%, it become significantly larger than the 100% deduction. (And to be exactly correct, it’s not really a 100% deduction, $500 is subtracted off of your regular donations first, THEN the rest goes into the tax calculation.)
Why does this tax credit exist? Instead of sending our tax dollars to the state government and hope that it trickles down to our county, the state realized that we can be more affective with our tax dollars by donating them directly to local economic development. KCEDF can use the money for operating expenses and organization projects, or the donor can designate what other non-profit or local government supported project they would like their money to go to.
(At this point I want to explain better about your federal tax benefit as well. Your federal tax benefit will be the same as if you had made a donation to any other non-profit.)
Let’s go through an example. Say your Colorado taxes are going to equal $200. In order to erase that $200 and not have to pay it to the state, you would have to contribute (donate) $800 to an EZ Contribution Project (to KCEDF). For people who like to make donations to worthy causes, this is an excellent way to help be able to afford to give money. The credit is 25%. So how would it look to make a smaller donation? If this person were to donate instead $200 to KCEDF, that would be $50 (25%) less they would have to send to the state. (The person would still have to send the remaining $150 to the state.)
If you are in the habit of making donations, figure out how much that helps you save on the taxes you pay. I ran the numbers for my taxes and instead of saving 25%, I’m only saving 4% on my state taxes on my regular type donations.
Disclaimer time: I am not a tax account, CPA or have any other qualification except liking to work with numbers and being willing to read a lot of technical tax code. I do attend some meetings with people who are tax professionals where such things are discussed and explained.
I hope these intrigues you enough to talk to your tax professional and while you are at it, me (Cindy McLoud) at Kiowa County Economic Development Foundation. Just to let you know, a couple of the projects that I’ve been working on and have recently received grants on are to dredge and otherwise make improvements to Jackson Pond south of Eads, and a Tourism grant for a strategic plan for economic development. Both these grants require local matching funds and your contribution would be great appreciated. Call me at 719.438.2200 or email at