This article was first published in the Springfield Business Journal’s 2024 Giving Guide. 

As we enter a season of giving, being mindful of tax credit availability can put you ahead during tax season and greatly reduce your tax bill.  

Both tax deductions and credits can be beneficial in reducing taxes each year. A deduction reduces taxable income, while tax credits reduce the amount of taxes owed. For instance, a tax deduction of $2,000 would lower taxable income by $2,000. In this case, if you were in the 22% tax bracket, a $2,000 deduction would result in $440 in savings.  

On the other hand, a $2,000 credit would lower your tax bill by $2,000 dollar-for-dollar. Tax credits are typically more beneficial in reducing your taxes owed. 

Types of Tax Credits 

There are three types of tax credits: nonrefundable, refundable, and partially refundable. The type of credit determines how it will be applied to your taxes. Most credits are nonrefundable.

Nonrefundable credits: Nonrefundable credits operate as refundable credits that reduce your tax liability. However, if you zero out your tax liability, you will not get any unused credit as a refund.

Refundable credits: Refundable credits are arguably the most sought-after credit because of their ability to not only reduce your taxes but can also result in a refund if the amount owed is lower than the credit itself. For example, if you owe $250 in taxes and you are eligible for a $500 credit, you would actually get a $250 refund.

Partially refundable credits: A partially refundable credit is a combination of the other two types of credit, as it works to reduce your tax liability and may also allow you to receive a partial refund. For instance, a $1,000 tax credit may only be refundable up to $500, meaning you could receive up to $500 in a refund if your taxes owed are less than the credit amount of $1,000.  

Common MO Tax Credits 

There are plenty of advantageous tax credits in Missouri. Commonly used credits include the Neighborhood Assistance Program (NAP) credit, the Pregnancy Resource Center credit, and the MOScholars credit.

NAP credit: The NAP credit funds projects that strengthen economic development, including job training, education, crime prevention, community services, and physical revitalization. Donors that give to eligible applications can receive a 50%-70% tax credit.

Pregnancy Resource Center credit: Contributions made to qualified pregnancy resource centers help fund services for women with unplanned or crisis pregnancies. This is a nonrefundable credit.

MOScholars credit: The MOScholar credit funds scholarships for students with Individual Education Plans (IEPs) as well as students from low-income households. 

A tax credit from a nonprofit can have a profound impact on both the community and the organization itself. For the community, these tax credit investments often translate into enhanced services and infrastructure, such as improved affordable housing, better educational programs, and robust environmental conservation efforts. These enhancements can lead to higher property values, job creation, and a generally more vibrant and prosperous local economy.

On the organizational level, the financial support provided through the use of tax credits ensures the sustainability and expansion of the nonprofit’s initiatives. It allows nonprofits to leverage additional funding, plan long-term projects, and increase their outreach, ultimately enabling them to serve more people and make a more substantial difference. This kind of support also boosts the nonprofit’s credibility and visibility, attracting further donations and partnerships. By investing in tax credits, individuals and businesses not only benefit from financial savings but also play a crucial role in driving positive change and fostering a healthier, more supportive community.  

Our team of Abacus Professionals can help you determine which credits are most advantageous to your situation.