If you’re claiming tax deductions for donations to your favorite Indiana college, expenses from weatherizing your home or costs to renovate a historic home, this may be the last year you can cut your taxes.
A legislator from Fishers is proposing eliminating 29 of the more than 50 income tax deductions, exemptions and credits that residents can claim on their annual tax return. That could mean you’d no longer get a $200 credit for making an annual donation to Franklin College, or no tax deduction when putting new insulation in your home.
Rep. Todd Huston, R-Fishers, is trying to streamline the state’s tax collection process by slashing underused or small tax credits and tweaking the way taxes are collected by the state. You could be affected if you claim one of the credits on the chopping block, but most are only claimed by a few hundred people statewide or are for small amounts, such as $100 or $200, Huston said.
The bigger or more popular credits, such as deductions for people who rent or make contributions to a college savings plan, aren’t being touched, Huston said.
“Some of them frankly haven’t been used at all, and it made sense to streamline the tax code,” Huston said. “The impact on some of these we would be giving away are nominal both in the number of filers and people across the state.”
Huston’s proposal to cut some tax credits is similar to a statewide tax incentive review launched last year by Rep. Eric Koch, who represents part of southern Johnson County. The five-year review requires the Legislative Service Agency to analyze every credit, deduction, exception and tax incentive in the state and determine whether it is beneficial to the state or essentially giving away money for activities that residents or businesses would do anyway.
Most of the credits being targeted by Huston haven’t been reviewed as part of Koch’s plan yet, but he was encouraged that another legislator is also thinking about cleaning up the tax process. The review taking place as part of Koch’s plan gives legislators a detailed analysis so they could make a data-driven decision about cutting a certain incentive, he said. If Huston’s cuts aren’t approved this year, some credits could still be chopped in the future, if warranted, he said.
“We are now driving the important discussion: Are these tax incentives that are being paid for by everyone else doing their job, or are we just giving money to arguably good causes that would be done anyway? Any time we can pause and measure what we do and make sure that the original intent is being fulfilled, that’s a good thing,” Koch said.
The House Ways and Means committee, which makes decisions about proposals that affect state taxes, heard Huston’s proposal last week but hadn’t made a decision yet, Indiana House Republicans communications director Tory Flynn said. Since the hearing, House Speaker Brian Bosma said he doesn’t want to get rid of the college donation credit and was also concerned about some other cuts proposed in Huston’s bill, Flynn said.
The college donation credit is by far the most used among the credits on Huston’s list to eliminate. About 90,000 Hoosiers claim the credit yearly, resulting in about $8 million in tax credits, according to the Legislative Services Agency.
But the credit is small, allowing taxpayers to deduct 50 percent of their donation, up to $100 for a single filer or $200 for a joint filing. Someone who gives $50 to their alma mater would only get a $25 credit, while someone else that might donate $1,000 per year saves just $200.
Huston argued that people are likely donating to help their school, not for the tax deduction, he said. For example, Indiana colleges received more than $630 million in donations in 2011, according to the Legislative Services Agency.
The credit isn’t large, but it is an incentive that can encourage younger alumni or first-time donors to consider giving to colleges, Franklin College President Jay Moseley said. A recent graduate may be willing to give $100 if they know they’d get $50 off their taxes, instead of not giving at all, Moseley said. Since fundraising helps provide financial aid for 96 percent of students at Franklin College, eliminating the credit could hurt the local campus, he said.
“When people graduate from Franklin College and they look back and tend to want to give back because someone helped them through. I think that’s a model for higher ed, and this part of the tax package is part of a catalyst,” Moseley said.
The insulation credit also is widely claimed, with about 40,000 people receiving it in 2012 and 2013. The credit can be up to $1,000 of the expense of installing new insulation, windows, doors or weather stripping at your home. But the credit, which was reviewed in the first year of Koch’s plan, isn’t very effective, the Legislative Services Agency determined. The credit may be responsible for a less than 2 percent increase in the number of insulation projects statewide.
“They’re going to insulate their house because they’re going to want to keep their house warm in the winter and save on utility bills. It’s not because they’re searching out a small credit from the state,” Huston said.
The other credits Huston is proposing to cut would have small tax impacts, which total about $12 million in lost taxes for the state. Some of the credits with impacts over $1 million don’t apply to the majority of Hoosiers, such as enterprise zone credits or deductions for out-of-state earnings. Others on the list are rarely used and total less than $100,000 per year, such as solar roof vent fan credits or credits for donations to the 21st Century Scholars program or police reward funds.
State lawmakers are considering a proposal to eliminate up to 29 different income tax credits that you could claim. The credits being targeted either have small dollar values or aren’t being used often by Hoosiers. Here’s a look at some of the credits at risk that you might be claiming:
Indiana college contribution credit
What it is: You can claim 50 percent of donations made to an Indiana college or university. The maximum credit is $100 for a single filer or $200 for joint filings.
How many people claim it: About 90,000 per year
Total impact to the state: $8.7 million
What it is: Claim up to $1,000 of the expenses for weatherization improvements such as insulation, windows and door or weather stripping.
How many people claim it: About 42,000 in 2013
Total impact to the state: $1.1 million
Residential historic rehabilitation deduction
What it is: Deduct 20 percent of the cost of renovations on a historic home approved by the Indiana Department of Natural Resources. The project must cost more than $20,000. The state cannot give out more than $250,000 in credits per year.
How many people claim it: 50 to 200 people per year
Total impact to the state: About $250,000 per year