By Jenny Kim, Manager

Virginia has many tax credits in place to help their residents and business owners save money. Tax credits are much more valuable than a deduction because they reduce your total tax bill dollar for dollar. Unfortunately, many people don’t take advantage of these credits because they’re either unsure if the credit applies to them, or confused by the process. Let me explain some of the more popular credits available so that you, the Virginia taxpayer, will be better prepared for the 2017 filing season.

Neighborhood Assistance Tax Credit

Virginia offers tax credits in exchange for donations to nonprofit organizations that are well recognized for helping the needy. More than 200 charities have been designated by the state as a Neighborhood Assistance Program (NAP), which provide health care, education, housing, job training, and food to our communities in need.

Donors receive a Virginia tax credit of 65 percent of the value of their total contribution. To be eligible for the 65 percent Virginia credit, you must contribute a minimum of $500. On the federal level, donors can deduct the entire contribution from their Adjusted Gross Income (AGI). For example, a $10,000 donation to a NAP would save $3,960 in federal income taxes and $575 in Virginia taxes (assuming the highest tax bracket), as well as receive a $6,500 Virginia tax credit.

In addition, if a taxpayer donates appreciated stock instead of cash, taxpayers can avoid federal capital gains tax, which can be as high as 23.8 percent. For some taxpayers, a donation to a NAP can yield federal and state tax savings at an amount more than that donated. Gifts of merchandise, services, or real estate are not eligible. For a full list of 2016-2017 NAP approved organizations, please click here.

Green Job Creation Tax Credit

This credit allows a $500 income tax credit for the creation of a “green” job* paying an annual salary of $50,000 for taxable years beginning on and after January 1, 2010 but before January 1, 2018. Each taxpayer is allowed a credit for up to 350 new green jobs.

To qualify for the tax credit, the taxpayer must have created the green job and filled it during the taxable year in which the credit is claimed. You cannot apply if you have applied for a Major Business Facility Job Tax Credit for the same job. The credit is allowed for the taxable year in which the job has been filled for at least one year and for each of the four succeeding taxable years provided the job is continuously filled during the respective taxable year.

*”Green job” means employment in industries relating to the field of renewable, alternative energies. For more information, please click here.

Land Preservation Tax Credit

The Land Preservation Tax Credit (LPC) is an income tax credit based on 40 percent of the fair market value of a donation of land to a public or private agency for historical and conservation preservation, agricultural use, forest use, open space, and/or natural resource conservation.

There have been some updates to this credit, including:

  • The annual cap has been reduced to $75 million for each calendar year. The credits are issued on a first come, first-serve basis until the cap is reached.
  • For conveyances recorded on or after July 1, 2015, Form LPC-1 must be received/postmarked no later than December 31 of the year following the calendar year of the conveyance.
  • Postmark dictates filing deadline and effective year of credit.
  • The maximum claim amount is $50,000 for the 2017 taxable year and thereafter.
  • Any taxpayer issued a credit by the Department of Taxation shall be allowed to use such credits for the taxable year beginning in the calendar year of issuance for the succeeding 10 consecutive tax years for any unused credit. There could be exceptions to this.
  • Virginia also allows tax payers to purchase LPCs from Virginia landowners who have already made charitable donations of land or easements for conservation purposes. Land and easement donors with unused credits can sell them at a discounted price to other Virginia taxpayers who can use them to offset their Virginia income tax. The purchaser can claim the LPC purchased at its face value on his tax return, so realizes savings by buying the LPC at a discount.

Recyclable Materials Processing Equipment Tax Credit

This is an individual and corporate income tax credit for certain taxpayers that purchase machinery and equipment used on the premises of a manufacturing facility or plant unit which manufactures, processes, compounds, or produces items of tangible personal property from recyclable materials within Virginia for sale.

The following changes have been implemented effective beginning in taxable year 2015:

  • The expiration date has been extended to December 31, 2019.
  • The credit allowed has been increased from 10 to 20 percent of the purchase price of qualifying machinery and equipment.
  • The annual cap is $2 million.

Worker Retraining Tax Credit

This credit allows an individual or corporate employer to claim a tax credit for the costs of providing worker retraining to qualified employees. Generally, the credit is 30 percent of all classroom training costs, but is limited to a $200 annual credit per student if the course work is done at a private school and $300 per qualified employee with retraining in a STEM or STEAM discipline. The Department of Taxation is authorized to issue up to $2,500,000 of retraining credits annually. Unused credits may be carried forward for three years.

Preparing and filing your year-end taxes can be a complicated and time consuming process, so if you have questions about these income tax credits or other tax issues, please consult with your CPA.

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The information contained in the Knowledge Center is intended solely to provide general guidance on matters of interest for the personal use of the reader, who accepts full responsibility for its use. In no event will CST or its partners, employees or agents, be liable to you or anyone else for any decision made or action taken in reliance on the information in this Knowledge Center or for any consequential, special or similar damages, even if advised of the possibility of such damages.