As we near the end of another year, tax planning is almost certainly not high up on our list of things to do. We’re probably still reeling from the Black Friday and Cyber Monday shopping deals, and getting ready for family gatherings and holiday shopping. But wouldn’t it be nice to create some positive cash flow at tax time, by making a few simple charitable donations this December and that will benefit Arizona based organizations? While you will have to float some dollars until April, you should actually come out ahead (i.e. recover all of your contribution plus get additional Schedule A deductions, assuming you itemize).
The Arizona Department of Revenue has four tax credits listed on their website (https://azdor.gov/tax-credits). Please look there for the most up to date and detailed information, including what forms to file and a list of qualifying charities for each credit (or contact your tax advisor). What follows is a summary of each tax credit (for the 2018 tax year) so you can learn about the benefits of each and determine which credits are worth pursuing.
1. Contributions to QCOs
This Arizona Personal Income Tax returns credit is for donations to Qualifying Charitable Organizations (QCO). QCOs provide immediate basic needs to residents of Arizona who receive temporary assistance for needy family’s benefits, are low income residents of Arizona, or are children who have a chronic illness or physical disability. The maximum credit allowed is $800 for married filing joint filers and $400 for single, heads of household, and married filing separate filers.
2. Contributions to QFCOs
The next Arizona Personal Income Tax returns credit is for donations to Qualifying Foster Care Charitable Organizations (QFCO). QFCOs provide immediate basic needs to residents of Arizona who receive temporary assistance for needy families (TANF) benefits, are low income residents of Arizona, or are children who have a chronic illness or physical disability, and provide immediate basic needs to at least 200 qualifying individuals in the foster care system. The maximum credit allowed is $1,000 for married filing joint filers and $500 for single, heads of household, and married filing separate filers.
3. Public School Tax Credit
An individual may claim a nonrefundable tax credit for making contributions or paying fees directly to a public school in this state for support of extracurricular activities. The maximum credit allowed is $400 for married filing joint filers and $200 for single, heads of household and married filing separate filers.
4. Contributions to Certified School Tuition Organizations
The final credit is the largest, and also the most complicated (it is actually two separate credits), as an individual can contribute to Private School Tuition Organizations up to a maximum allowed amount, and then make an additional contribution to Certified School Tuition Organizations. The maximum amounts, as in the other credits, may be reduced depending on the taxpayer’s income. Assuming the largest possible donation allowed, the maximum credit allowed for the first credit is $555 for single, heads of household and married filing separate filers and $1,110 for married filing joint filers. For the second credit, the maximum credit allowed is $552 for single, heads of household and married filing separate filers and $1,103 for married filing joint filers.
Under most circumstances you will be able to obtain a dollar for dollar credit on your Arizona tax return for the contributions you made. Any excess amounts that cannot be deducted will carryover to next year. An additional benefit comes from deducting the contributions on your federal return, if you itemize deductions. So, in addition to being a charitable Arizona resident, you can actually reduce your overall tax bill with this strategy! Make your contributions before December 31, 2018, however, in order to claim the charitable deductions on your 2018 federal tax return. If you make the contributions after this but before April 15, 2019, you can still take the Arizona tax credits for 2018, but you will have to save the itemized deductions until your 2019 return.
Contact Qwik Consulting to discuss your tax credit planning or for help with competing your tax return!