Private School Tuition and Tax Deductions

[Ernie]

Donating scholarships is fine. Personally benefitting or specifically directing them to individuals is the problem.

Can you donate toward a scholarship for your minor child?

[joshuabgood]

Donating scholarships is fine. Personally benefitting or specifically directing them to individuals is the problem.

Can you donate toward a scholarship for your minor child?

No. They can't be directed to specific individuals...that is money laundering.

[ohio jones]

My church does not have a school; however, we do have a fund that reimburses parents for a portion of their private school tuition or homeschool expenses. I suppose if someone wanted to, they could donate to the fund the amount they receive back from it, and make that amount tax deductible. That would be a little shady, but still legal. In practice, though, that does not happen.

I don't think there's a church school anywhere that covers all of their costs through tuition; that would be unaffordable for most parents. There's always a percentage that is subsidized through donations, church offerings, or fundraising of various types. The line between tuition and subsidy can vary quite a bit from one situation to another, and I don't necessarily see that as an ethical issue -- as long as the sterilization of lucre isn't the primary motivation behind setting it up a particular way.

[mike]

With EITC, it seems to me that PA wants business owners to help fund private schools.

Yes, PA does want that. They actually want to send public money to private schools in whatever way they can. Funds have long been available that private schools actually don't take advantage of. But with the EITC they have found a way to actually fund Anabaptist and other private schools, and it is making a big difference.

But, different subject. Also, the real issue here is federal taxes, because that's a far larger tax than the state tax, at least for higher income brackets. And that's where this loophole presents real savings.

When you give a donation to a non-profit, the non-profit needs to stipulate that no goods or services were given in exchange for the donation. So it seems that "all donations" might be a problem.

If I remember correctly, our church issues a statement at the end of the year with the total of donations for the year, and it includes a similar statement to the bold above. For those using their donations to the church to pay their school tuition, this is not an accurate statement.

[ken_sylvania]

This is a thread for those attending a church that sponsors a school. Others may participate, but I'd like to hear from folks who have experience with this.

Under federal tax law, private school tuition isn’t tax deductible unless your child is attending a private school for special needs.

In our congregation, the school is funded in three ways.

1. School tuition assessed at a flat rate per patron family. This however is not tracked or enforced if someone is unable to pay, except for patrons that are not church members.
2. Monthly church offerings for the school fund.
3. Funds received from donors through the state's EITC program.

All large capital expenses (building and major improvements) are funded by the church's building fund.

I am aware that a sizeable amount of the tuition payments are made through the church's monthly school offering, rather than directly to the school, specifically to be able to write off the tuition as a tax deduction since it is given to the church, not the school.

Questions:

Does your church/school accept tuition payments in this way?
Is this illegal and/or unethical in your view? If so, would switching entirely to a donation basis solve the issue?
How likely is this practice to be discovered by tax authorities, and if so, what would the consequences be?

Our church/school does not accept tuition payments through the church offerings. Tuition payments are made to the school.
Our church does lift offerings for the expenses of the school that are not covered by tuition, as well as additional offerings that are divided among all of the school teachers in the congregation.

This is 100% legal and completely ethical. The question, with regard to tax deductible donations to a non-profit or a church, is whether any goods or services (other than intangible religious benefits) were provided in exchange for the donation. The services provided by the school are not in any way contingent upon or related to any donation or failure to donate to the church offering. In fact, it's highly unlikely that anyone other than the donor would know what amount if any he/she donated in the school offering.

While there may be some appreciation for the tax benefits of donations throught he church, there is very much a sense among our congregation that the schools are the work of the church and supported by the entire church, not just the parents of the school children.

I would answer your last question by saying No, it's unlikely the tax authorities would discover this practice for the simple reason that they already know about it, and the practice complies with the law.

[Ken]

A somewhat common scenario in CA circles is where somebody will "donate" the tuition for a needy family specifically and then ask for a tax deductible receipt. This is not acceptable/legal. If it were we could all pay each others tuition (I pay yours you pay mine) and have it be tax deductible. Specific gifts to individuals can be given, however, they are not deductible. Same is true in church offerings incidentally.

I’m not sure why you think this isn’t legal. It is entirely legal and tax deductible to donate scholarships; nonprofit foundations do it all the time. A scholarship does eventually end up being for a specific person.

You can also pay for K-12 with a 529 plan which lets you invest tax free, albeit in rather crummy investments hand picked by your state. The obvious answer is to have church supported schools and not to charge families tuition, but to expect all families will contribute in some way, including so that the needy can also attend school.

It is absolutely illegal to deduct any portion of a charitable donation for which you received a benefit. Either directly or indirectly. Here is a screenshot of the IRS web site that explains this. They include many many examples if you scroll down including private school tuition. So if two families are making separate donations to a charity or school on behalf of their different children then that would be considered an illegal tax deduction.

Do people do this sort of thing? Even "good Christians"? No doubt. There are probably an infinite number of ways that people use to cheat on their taxes. And most don't get caught. But that doesn't make it legal.

[ken_sylvania]

If I remember correctly, our church issues a statement at the end of the year with the total of donations for the year, and it includes a similar statement to the bold above. For those using their donations to the church to pay their school tuition, this is not an accurate statement.

Is access to your church school conditioned on whether donations are made to the church?

[mike]

The line between tuition and subsidy can vary quite a bit from one situation to another, and I don't necessarily see that as an ethical issue -- as long as the sterilization of lucre isn't the primary motivation behind setting it up a particular way.

The scenario I am describing has no line between tuition and subsidy - funds are channeled entirely through the subsidy avenue so as to be a tax deduction. If there were a reasonable balance between the two I wouldn't see it as a big concern.

[mike]

If I remember correctly, our church issues a statement at the end of the year with the total of donations for the year, and it includes a similar statement to the bold above. For those using their donations to the church to pay their school tuition, this is not an accurate statement.

Is access to your church school conditioned on whether donations are made to the church?

For members, I assume it is not. As I said before, tuition payments by church members are not tracked. And the school would have no way of knowing, unless there is communication between the deacon and the board, how much a member is donating to the school through the church's fund, or if at all.

My guess is that if a family contributes nothing, it's going to become clear at some point. I assume that if there were genuine hardship, it would not be a problem. Non-member patrons are required to pay the stated tuition.

[RZehr]

Our school is wholly financed through the free will offerings of our congregation. No tuition or fundraiser. Conceivably, any family could send all their children to school and never contribute a cent. And no one would say boo. We do have a paper on the bulletin board that shows what the annual cost of the school is.

It has been my observation that the further a church goes towards individualism, and away from the traditional conservative Mennonite model, the school inevitably makes the following adjustment:
1. Tuition per student becomes desirable. People want to not share the cost, but rather pay for their own.
2. Teacher wages increase, because of a decrease of shared sacrifice in the work. Teachers are then more easily able to teach many years.
3. Fundraisers become necessary to take the increasing cost out of tuition. Businesses are solicited for funds. Community fundraisers become regular.
4. Tuition becomes more expensive.
5. Tuition for some families become burdensome.
6. School must either find new students and income, or cut costs. Since there is a lack of brotherhood sharing, this necessitates recruiting students from other churches or the community who can afford it.
7. Since the school is no longer solely for the congregation(s) that started it, and the cost is increased, some members homeschool, or shop for a cheaper school.
8. The school is simply competing with other Christian schools and public schools. Some of the problems found in Christian schools and public schools begin to show up in the church school.
9. As the school and church becomes more liberal, the student body from the church as a percentage shrinks. Perhaps the overall numbers shrink.
10. The end. The school becomes very similar to other Christian schools in the area, or else it closes down.

Schools are expensive. Ours is about $175k per year, and about 27 students. And if a church has a weak sense of brotherhood and vision, and a strong sense of individualism, the school will not remain a church school. It has to grow or die.