You meant to take advantage of Arizona state tax credits, but the holidays got in the way of your intentions to round out your 2020 charitable giving. Or perhaps you’ve recently run up your returns and realized that you could have given a lot (or even a little) more? In Arizona (and many other states), you can still claim donations made after December 31 but before April 15 on your previous year’s tax credits. Here’s what you need to know.
How Do State Charitable Tax Credits Work?
Unlike a tax deduction (which simply lowers the amount of your taxable income), state tax credits act as a dollar-for-dollar deduction on the amount of taxes that you owe to the state. For example, if Jane’s taxable income in 2019 is $50,000, and her effective tax rate is 10%, she will owe $5,000 in taxes. If she makes qualifying charitable contributions in the amount of $2,500, her taxable income will only be $47,500; so, at an effective tax rate of 10%, her charitable contribution of $2,500 will only reduce her taxes by $250. Under Arizona’s tax credit rules, if Jane contributes the maximum allowable amount of $400 to a qualifying charitable organization, her tax state taxes owed would be reduced by the entire amount; she would owe $5,000 in taxes minus $400, or $4,600 total.
From the perspective of qualifying charities, Arizona state tax credits are a win for everyone. Qualified charities receive the support they need at no extra expense to the taxpayer beyond what they would already owe to the state in taxes. Note that while credits are non-refundable (i.e., if you don’t end up owing enough in taxes to fully benefit from the credits, you will not get a refund from the state), unused credits can be carried forward for 5 years.
Charitable tax credits are only applicable to specific categories of charities, as listed below.
List of Arizona’s Tax Credits for 2020
Public Schools (AZ Form 322)
Credit for contributions of up to $400 for couples filing jointly and $200 for all other filers is available for payments of fees to an AZ public school or charter school for support of extra-curricular activities or character programs.
- Form 322 with instructions
- 707 Publications: School Tax Credit Information
- List of Schools and CTDS County Code, Type Code, and District Code & Site Number
Private School Tuition Organizations (AZ Form 323)
Credit for contributions to a Private School Tuition Organization (Original Credit) of up to $1,186 for couples filing jointly and $593 for all other taxpayers. The contribution provides scholarships or grants to qualified elementary and high schools. It cannot be designated for the direct benefit of your dependent but can benefit a relative.
- Form 323 with instructions
- List of School Tuition Organizations
- Information about qualifying as a Private School Tuition Organization
Certified School Tuition Organizations (AZ Form 348)
Credit for contributions to a Certified School Tuition Organization (Switcher Credit) of up to $1,179 for couples filing jointly and $590 for all other taxpayers. This credit is only available to individuals that first donated the maximum amount allowed under the Credit for Contributions to Private School Tuition Organizations (AZ Form 323) above.
- Form 328 with instructions
- List of School Tuition Organizations
- Information about qualifying as a Certified School Tuition Organization
Qualifying Charitable Organizations (AZ Form 321)
A credit of up to $800 for couples filing jointly and $400 for all other filers is available for contributions to a qualified charitable organization.
- Form 321 with instructions
- List of Qualifying Charitable Organizations for 2020
- Information about qualifying as a Qualifying Charitable Organization
Qualifying Foster Care Charitable Organizations (AZ Form 352)
A credit of up to $1,000 for couples filing jointly and $500 for all other filers is available for contributions to a qualified foster care charitable organization.
- Form 352 with instructions
- List of Qualified Foster Care Charitable Organizations for 2020
- Information about qualifying as a Qualifying Foster Care Charitable Organization
Several other tax credits are available (although with different restrictions on the timing of contributions) in addition to the above-listed credits. More information is available at the Arizona Department of Revenue website here.
Ellis Carter is a nonprofit lawyer with Caritas Law Group, P.C. licensed to practice in Washington and Arizona. Ellis advises nonprofit and socially responsible businesses on corporate, tax, and fundraising regulations nationwide. Ellis also advises donors with regard to major gifts. To schedule a consultation with Ellis, call 602-456-0071 or email us through our contact form.