You may already contribute to an organization here in Colorado that helps children. But did you know that your donation may qualify for a sizable tax credit? The Colorado Child Care Contribution Tax Credit is available for Colorado donors who make a contribution to a qualifying child care organization or fund. Such a donation can generate a Colorado tax credit of up to 50% of your total donation. However, please note that in-kind donations (non-cash gifts like school supplies, snacks, etc.) don’t qualify.
What donations qualify?
To qualify for this tax credit, your donation(s) must be made to an organization that promotes the establishment or operation of a licensed child care facility or program. For example:
- Child care centers
- Placement agencies
- Family child care homes
- Foster care homes
- Homeless youth shelters
- Residential child care facilities
- Residential treatment centers
*Registered child care programs that provide services similar to licensed programs may also qualify.
How your child care donation reduces your taxes
Here’s how your child care donation gives back to you, the taxpayer. Let’s say you are in the 25% Federal income tax bracket, itemize your deductions, and make a $5,000 donation to a not-for-profit licensed agency that provides child care to children under 12. When you file your federal taxes, you’ll receive a $5,000 charitable deduction, which will reduce your federal liability by $570 and your Colorado liability by $230. You will then receive a $2,500 credit against your remaining Colorado liability when you file your state taxes. The credit will either reduce your payment or increase your refund. So, although you may have written your donation check for $5,000, your contribution actually cost you only $1,700. (See the chart below.)
|Check written to Child Care agency||$5,000|
|Reduction of Federal Taxes||-$570|
|Reduction of Colorado Taxes||-$230|
|Credit against Colorado Taxes||-$2,500|
|Net cost of Donation||$1,700|
Things to remember
- The tax credit is limited to $100,000 per year
- The tax credit is limited to the tax liability of the taxpayer. Any excess credit can be applied against the tax liability in up to five successive years.
- Your donation must be made to licensed child care programs that benefit children age 12 or under. Organizations that serve children under 12 and over 12, unless grandfathered, will allocate your donation between both groups, unless specific donor restrictions are given at the time of the donation.
- The organization you donate to will provide you with a DR1317 Child Care Contribution Tax Credit Certification form for you to attach to your income tax returns for the year you claim the credit.
As you can see, when you give a financial gift to a child care organization, you not only help improve the lives of local families, but also help yourself save by utilizing an effective tax strategy. If you have any questions about the Colorado Child Care Contribution Tax Credit, please do not hesitate to contact us.