In America, it's up to individuals to invest in their community. Civic-minded corporations are driven by visionaries, and most of those movers and shakers agree: when the tide comes in, everyone's boat rises. The State of Maryland approves of this idea, so a program has been created that grants tax credits in exchange for donations to non-profits who actively develop community investment.

One such non-profit is Maryland Capital Enterprises (MCE), an organization whose mission is to “Help economically disadvantaged residents of Maryland's Eastern Shore become self-sufficient through entrepreneurship by aiding in the creation and expansion of micro-businesses owned by minorities, women, and others with low incomes and limited assets.” The organization accomplishes this mission by making loans to persons starting a business who are often not eligible for traditional financing.

One beneficiary of this mission is Vanessa Jones-Warner of God’s Little Angels Childcare in Salisbury, Maryland. Ms. Jones-Warner was self-employed with an in-home day care. She wanted to expand but did not know how to proceed. With counseling from MCE Ms. Jones-Warner created a business plan and purchased a building. She needed more equipment to supply a larger building but was denied a loan by her bank. MCE loaned Ms. Jones-Warner the money for equipment and she was able to open the larger location that now employs three people. Says Ms. Jones-Warner, “MCE helped me take my business to the next level.”

The tax credit incentive allows for significant leverage of corporate dollars. Tax credits bring more value to a corporate bottom line than charitable deductions. Charitable deductions only reduce the taxable income whereas tax credits reduce tax paid dollar-for-dollar. For example, a company with $100,000 in profits that made a $10,000 donation to charity would reduce their taxable income to $90,000 and end up paying $7,425 in Maryland taxes instead of $8,245. The same company that donates $10,000 to a charity with tax credits would receive the deduction and receive a credit of $5,000. This would reduce their state tax bill from $8,245 to $2,425. (Not included in this example is the additional impact of the Federal deduction.) In short, these credits granted by the State allow businesses to redirect what would otherwise be tax dollars toward community development.

One local company that has leveraged community investment is First Shore Federal. This bank has given to many organizations offering tax credits such as Habitat for Humanity, Pocomoke Marketing Partnership for Pocomoke River Discovery Center, Salisbury Neighborhood Housing Services and Maryland Capital Enterprises. Asked if the tax credits were the motivation for the gift, CEO Marty Neat said, “Sure, they basically give the opportunity to double your gift. The way they are structured, you get to give your gift as well as what you would have paid in taxes. Is it the only consideration? No, but it certainly is a factor.”

Maryland’s Department of Housing and Community Development awards a total of $1 million in tax credits to worthy projects that creatively address community issues. The awards process is competitive and place both small and large organizations on a level playing field. Dan Aker, Program Officer of Neighborhood Revitalization Division, thinks one of the benefits of the program is that it “Does not entail any money on the part of the State, just crediting $1 million in tax credits.” Asked why this program has been so successful, Mr. Aker said, “There really is a double benefit for companies. First of all the credit but in addition, the business that buys the tax credit receives the tax deduction on the Federal level.”

Of course, one does not give because of the tax credit; community investment should be made for the right reasons. Never let the tax tail wag the dog; an investment should make good community sense and not just tax sense. For companies who are already investing in the community, leveraging a gift with tax credits is the logical course of action. For companies who are not yet investing but wish to start, consider diverting tax dollars to an organization with credits to give away.

A list of Maryland organizations with tax credits available can be found at www.neighborhoodrevitalization.org under Community Investment Tax Credits.

Samuel F. Slabaugh, Sr. is a CERTIFIED FINANCIAL PLANNER™ professional with EST Financial Group in Delmar, Delaware. He specializes in retirement planning, estate planning and small business consulting.