Because the majority of our clients live in Arizona, I have chosen this month to discuss the merits of contributions to charities that qualify as Arizona tax credits. Since these contributions qualify not only as dollar for dollar credits on the Arizona income tax return but also as a charitable itemized deduction on the federal return, consideration by any Arizona resident to contribute to them is advisable.
There are four main Arizona tax credits available: the public schools tax credit, the private tuition organization tax credit, the qualifying charitable organization credit and the qualifying foster care charitable organization credit. Except for the private tuition organization credit, a taxpayer must contribute to the qualified charitable organization by December 31st of a given tax year to have the credit be effective for that tax year. For the private tuition organization tax credit, a taxpayer is allowed to contribute up until the initial filing deadline (usually April 15th of the following year) and still have the credit apply to the prior tax year.
Each of these credits reduce a taxpayer’s state income tax liability for a given tax year dollar for dollar. Credits represent actual bottom-line tax savings compared to deductions which only reduce taxable income before applying applicable tax rates. Therefore, tax credits are much more valuable than tax deductions. When the Arizona tax credits are properly utilized, the taxpayer is effectively redirecting tax dollars that would otherwise be paid into the general fund of the Arizona Department of Revenue (ADOR) to the qualifying charity of their choice. In addition, assuming these contributions also qualify for a federal charitable tax deduction, the taxpayer is allowed a tax break over and above the receipt of their contributed dollars back from Arizona.
The 2015 public schools tax credit annual limit is $200 for single and $400 for married taxpayers. Generally, public and charter schools qualify for contributions related to this credit. The ADOR provides a list of qualifying schools each tax year.
The 2015 private tuition organization tax credit is comprised of two components – the private school tuition organization credit and the certified school tuition organization-individual credit. The combined tax credit annual limit is $1,067 for single and $2,134 for married taxpayers. The ADOR provides a list of qualifying private school tuition organizations each tax year. As stated above, this is the only Arizona credit that allows the taxpayer to contribute for a given tax year up until the original filing date in April of the following year.
The 2015 qualifying charitable organization credit annual limit is $200 for single and $400 for married taxpayers. The ADOR provides a list of qualifying charitable organizations each tax year. These organizations typically include those that provide assistance for those residents in need of temporary assistance, who are low income or who have children with chronic illness or physical disabilities.
The 2015 qualifying foster care charitable organization credit annual limit is $200 for single and $400 for married taxpayers. The ADOR provides a list of qualifying foster care charitable organizations each tax year.
For Arizona residents, these tax credits offer a great avenue to support those in need and reduce your tax liability at the same time and I highly recommend that my clients consider contributing to any and all of these organizations. Keep in mind that three of the four credits I have discussed above must be funded before year end to qualify as a credit on your 2015 income tax return so time is of the essence. Please visit the ADOR website for more information regarding these credits. If you have further questions, please contact us.