Now may be one of life’s few instances where robbing Peter to pay Paul makes you feel good, saves you money in taxes and is perfectly legal, thanks to Arizona tax credits for contributions to qualifying schools, charities and foster care organizations.
The latter two, under the umbrella of a so-called working poor tax credit, are intended to provide assistance through qualifying charitable organizations to Arizona residents with low income, chronic illnesses, physical disabilities, foster care needs and/or benefits received from Temporary Assistance for Needy Families (TANF).
The working poor and school credits allow individual taxpayers to take dollar for dollar credits for contributions made during the year to approved charities or schools, thus reducing taxpayers’ overall taxes owed to the state by that donation amount. In this scenario, the contribution itself pays Paul to the revenue stream lost by Arizona, in the role of Peter. However, the state may benefit by not having to budget for such services, which can be efficiently delivered by local, non-governmental nonprofits.
Tax credits are “a wonderful, no cost giving opportunity to support needs in Arizona,” said Carol Chamberlain, regional manager for the Yavapai County Community Foundation (YCCF), an affiliate of the Arizona Community Foundation (ACF). “It’s not an out-of-pocket expense. You are going to spend [the money] for the government or the organization…It’s an absolutely fabulous giving choice for donors and gift opportunity for nonprofits.”
A number of Quad Cities charities offering food, social services and health care have met the specific Internal Revenue Service (IRS) requirements for qualifying charitable organizations. Examples of area charities among the approximately 648 qualifying organizations for tax year 2014 are Prescott Area Women’s Shelter, Prescott Community Cupboard Food Bank, Inc., Prescott Meals On Wheels, Prescott Valley Food Bank and Prescott Valley Library Adult Literacy. This short list provides only an easy-to-spot sampling from the statewide list at www.azdor.org.
“The IRS designation of 501(c)(3) means that we have been determined to provide valuable, critical services within our community,” said Bert Ijams, executive director of Prescott Meals On Wheels. “We non-profits exist only to be of service to our community. Local investment in Prescott Meals On Wheels, for example, helps provide our services and fulfill our mission. The wonderful thing about the Arizona State Tax Credit is that for every dollar you give, you get that dollar back.”
The maximum qualifying working poor tax credit is $200 for single or head of household and $400 for married taxpayers. IRS regulations allow increases in the maximum credit permitted as behavioral incentives for donations at specific levels and designated causes. The maximum tax credit allowance doubles, for example, if a donation is made to a qualifying foster care organization.
Schools eligible for the tax credit provide educational services to students from kindergarten through high school. Maximum tax credit claims for donations to public schools tap out at $200 for single or head of household filers and $400 for married couples. Incentives also are promoted for contributions to private school tuition organizations and certified school tuition organizations.
A maximum Original Tax Credit Program contribution to schools maxes out at $528 for single or head of household and $1,056 for married couples. Once that limit is met under the Original Tax Credit Program, any additional contributions automatically fall into the Switchover/Overflow Tax Credit Program, for which maximum tax credit levels are $525 for single or head of household and $1,050 for married couples.
The specific amount of any credit must offset a tax liability, so a taxpayer owing no tax would not be eligible. However, there may be carryover opportunities from year to year. Additionally, federal deductions on school and working poor contributions also may be available, depending on an individual taxpayer’s circumstances.
Taxpayers may take advantage of both the school and working poor credits each year, and itemizing deductions is not currently required to claim the credits. Details regarding how to take the credits are described in two DOR publications: Pub 707 for school and Pub 710 for working poor tax credits. Consulting one’s tax accountant also can provide guidance regarding the programs and how the individual or married couple can best optimize decision-making regarding the credits.
Most qualifying donations must be received by the organization no later than Dec. 31 of the tax year in which they will be applied. An exception is private school tax credits, which can be taken between Jan. 1, 2015 and April 15, 2015 and applied to either 2014 or 2015 tax liability, according to the DOR.
For tax year 2011, the DOR reports that 388,226 Arizonans claimed $115.4 million in tax credits allocated to charities providing assistance under the working poor credit and support to schools through private school tuition organizations and public school extracurricular activity funding.
The same DOR study sheds light on Yavapai County taxpayer and credit claim history, showing an average Federal Adjusted Gross Income of $43,220 and a tax liability per return averaging $776. Trending with the demographic profile, the DOR also identified Yavapai as the county with the fewest dependents (27 percent), the most filers age 65 and up (21 percent) and the largest number of itemized returns (46.7 percent) among counties in the state.
Tax credits for businesses and corporations are available through the Arizona Community
Foundation School Tuition Organization (STO), which provides scholarships to low-income, disabled and displaced students across Arizona to attend tuition-bearing private schools, according to Chamberlain. Filing an application at www.azfoundation.org/STO begins a process where the foundation’s staff obtains approval from the state and notifies the business to initiate the contribution. QCBN
By Sue Marceau
Quad Cities Business News