Tax Time: Good Time for a Great Deal

Corporations, businesses or individuals contributing to the Hawaii IDA Fund matching pool can receive a credit equal to 50% of the amount donated. While the credit will reduce the taxpayer’s Hawaii state tax liability, the donation can also be used as a charitable contribution on federal tax returns.

Individual Development Accounts, or IDA's, are special matched savings accounts that reward monthly savings of low-income families who are saving for assets such as a first home, education, or business. The reward comes in the form of matching funds, raised from the Hawaii IDA tax credit, which, along with participant savings, is used to acquire a productive asset.

In the long-term, IDAs allow and encourage low-income families to create a savings habit and accumulate assets. IDAs are not a handout; they are a hand-up. They allow Hawaii’s low to moderate income families to build assets, which, research proves, provide security, stability, and opportunity.

IDAs and assets have proven to create positive psychological, social, and economic effects benefiting the entire community: A better, more educated workforce, more homeowners, more investors, viable businesses, and hope for the future.

IDA programs, operated by local non-profit organizations, integrate asset accumulation with financial education, business training, career guidance, homebuyer education, and other support services.

A tax payer in the 33% tax bracket who donates $10,000 to the Hawaii IDA Fund can effectively receive $5,000 back in the form of a Hawaii tax credit and reduce federal taxes by $3,300 through the charitable contribution deduction. The result is a net contribution of $1,700, which can help 4 or 5 families become a first-time homeowner, start a small business, or pay for a higher education.

What makes the Hawaii IDA tax credit unique is that 100% of the contribution stays in Hawaii and 100% goes to IDA participants.

The maximum contribution is $2 million. The credit can be claimed against the taxpayer’s net tax liability for the year in which the donation was made. Any amounts exceeding the tax liability can be carried over in subsequent years until exhausted.

In order to take advantage of the IDA tax credit, donors make a contribution to the Hawaii IDA Fund, an initiative of Aloha United Way, Parents and Children Together (PACT), Alu Like, American Savings Bank, Bank of Hawaii, and others. PACT will have the contribution certified and send State of Hawaii tax form N-320 to each donor. The donor will file the completed form N-320 with his/her state tax return in the year the donation was made.

Contributions can be sent to the Hawaii IDA Fund, c/o Parents And Children Together, 1485 Linapuni Street, Suite 105, Honolulu, HI 96819. Please include the contributor’s name and return address. More information can be obtained by calling 554-3602 or visiting Aloha United Way’s IDA website at www.auw.org/211 and clicking on IDAs