Eliminate or Reduce Arizona and IRS taxes
December 21, 2016 |
Lin Leclair, EA
President, National Association of Tax Professionals, Arizona Chapter
Two new tax laws signed into legislation in 2016 by Arizona Governor Doug Ducey increased and expanded Arizona’s “dollar for dollar” tax credits. This allows many Arizona residents to significantly reduce or even eliminate the normal income taxes that they would pay to the state of Arizona. SB 1216 increased the amount that may be claimed under these credits and SB 1217 extended the donation due dates until April 18th, 2017. Effective for 2016 tax returns, a married couple filing a joint return could eliminate up to $4,773 of their Arizona tax bill and $2,387 for all other filers.
They are called ”dollar-for-dollar” credits because each one takes a dollar off your Arizona income tax for each dollar you donate, up to the limits in the table below. But the tax break doesn’t end there —these donations may also count as a charitable contribution on your federal tax return as well. So, if you are in a 25 percent federal tax bracket, you may get back $1.25 for each dollar you give. That’s $1 off your state tax and 25¢ off your federal tax.
There are five different credits that you may choose from, and you may give to qualified organizations to claim any or all of these credits in the same year. The actual amount of the credit used is limited to your tax liability for the year, although any unused credit will carry over to use in future years for up to five consecutive years, so be sure to consult your tax advisor to determine your eligibility.
Qualifying Charitable Organization
These Qualifying Charitable Organizations (QCO) aid low income residents of Arizona, or children who have a chronic illness or physical disability. More than 700 community organizations in Arizona qualify for this credit. For a complete list visit: www.azdor.gov/TaxCredits/QualifyingCharitableOrganizations
Qualifying Foster Care Organization
Beginning in 2016, a separate credit is available for contributions to Qualifying Foster Care Charitable Organizations (QFCO) that aid Arizona children in the foster care system and meet additional criteria. More than 30 foster care organizations throughout Arizona qualify for this credit. For a complete list visit: www.azdor.gov/TaxCredits/QualifyingCharitableOrganizations
Donations made thru payroll deductions to several “umbrella organizations” such as most United Way campaigns, can qualify if the donation is designated to be directed to a QCO or QFCO.
This is a credit for contributing or paying fees to a public school in support of extracurricular activities, charter school education programs as well as some standardized testing and preparation programs or CPR training. Any public or charter school providing K thru 12 education in Arizona qualifies. For a complete list visit: www.azdor.gov/TaxCredits/SchoolTaxCreditsforIndividuals
Extracurricular activities are school sponsored, optional activities that may require enrolled students to pay a fee to participate. The activities must supplement the school’s education program. Such activities may include, but are not limited to use of band uniforms, use of equipment, use of uniforms for athletics, use of scientific laboratory equipment, use of scientific laboratory materials, in-state or out-of-state trips that are solely for competitive events. Extracurricular activities do not include any senior trips or events that are recreational, amusement or tourist activities. Donations to a PTO do not qualify.
While parents can claim this credit, other taxpayers, such as grandparents and neighbors, can also donate for this credit. However, donations for your dependent cannot be claimed as a charitable contribution on your federal tax return.
Private School Tuition Organization
This is actually two separate credits for donating to a scholarship program of a Private School Tuition Organization that awards children in Arizona private schools. A qualified school is a non-governmental preschool for handicapped students or a non-governmental primary or secondary school located in Arizona. For a complete list visit: www.azdor.gov/TaxCredits/SchoolTaxCreditsforIndividuals
You cannot donate directly to a specific school, but there are many organizations that do allow you to designate the scholarship award to a specific school or even an individual student. However, you cannot donate toward your own child or agree with someone else to sponsor each other’s children.
Once your donation reaches the original maximum allowed for your filing status, you may claim an additional credit under the “Plus” or “Switcher” rules. These scholarships are awarded to children that are new to school or are switching to private schools from public schools. The original credit is claimed on form 323 and the additional credit on form 348.
As of 2016, contributions to any of the above organizations made between January 1 and April 18, 2017 may be taken as a credit on either the 2016 or 2017 tax return. However, to also be claimed as a charitable contribution on a federal tax return, the donation must be made by December 31. Only monetary donations apply for all credits.
Arizona Military Family Relief Fund
This credit benefits Arizona service members and their families. The assistance goes to those who are deployed or to the families of those injured or killed. The credit is capped at $1 million annually which was reached on November 18, 2016. Any contributions received after the $1 million is reached are returned. The form to submit this tax credit donation can be found at: https://dvs.az.gov/mfrf.
Taking advantage of these dollar for dollar credits is a win-win situation for Arizona taxpayers. It allows taxpayers to reduce or eliminate their tax bills and support many of the qualified charities to support the Arizona community and our education system.
Lin resides in Tucson and is the originating partner of 1st Choice Tax Services Inc. She is a frequent presenter at educational seminars for tax professionals. She has been enrolled to practice before the IRS since 1994. Her email is Lin@1stchoicetaxservices.com.
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