Q&A: Tax Credit Options
Charitable giving is its own reward but knowing that your charitable gift to Ryan House helps those who need solace after a diagnosis makes your donation even more wonderful. On average, about 41% of pediatric palliative care patients are under one year of age, including perinatal patients, while about 45% were between the ages of two and 17.
The state of Arizona also provides a financial benefit for charitable giving. Under the Arizona Charitable Tax Credit, you can reduce your state income tax dollar-for-dollar for your contributions to a Qualifying Charitable Organization (QCO). Individual filers receive a dollar-for-dollar tax credit up to $400 and joint filers up to $800. Thus, charitable donations in Arizona reward your heart and your wallet.
The state of Arizona provides a list of QCOs and Ryan House is among the approved organizations. Here are some questions and answers about the Arizona Charitable Tax Credit:
What is a tax credit?
A tax credit reduces your Arizona state income tax. For example, if you owe Arizona $1,000 in state income tax and you earn an Arizona Charitable Tax Credit of $400, your tax bill will only be $600.
What is the difference between a credit and a deduction?
A credit reduces your tax bill. A deduction reduces the income used to calculate your tax bill.
To understand the difference, Arizona’s highest tax bracket is 4.5%. This means that a $100 deduction results in a tax reduction of, at most, $4.50 on your tax bill. It is not exactly $4.50 because of marginal tax brackets.
On the other hand, a credit is a dollar-for-dollar reduction of your tax bill. This means that a $100 credit reduces your tax bill by $100.
What are the limits on the Arizona Charitable Tax Credit?
The credit is only available for cash donations. In-kind donations of property, stocks, vehicles, or other personal or real property do not qualify for the credit.
For cash donations, the limits are:
- For a married couple filing jointly, the maximum charitable credit is $800.
- For a single filer, the maximum charitable credit is $400.
What do I need to claim the Arizona Charitable Tax Credit?
When you make a cash donation, the charity will provide you a receipt with the amount and the organization’s QCO code. This information is entered on form 321 filed with your Arizona tax return.
Charitable donations made between January 1 and December 31 of a tax year are claimed on that tax year’s return. For example, a donation made during the 2020 calendar year is claimed on your 2020 tax return.
But Arizona also allows you to claim a donation made between January 1 and April 15 of the next tax year on the prior year’s return. Thus, a donation made in February 2021 can be claimed on your 2020 tax return or 2021 tax return.
Can I carry the Arizona Charitable Tax Credit over to another tax year?
Yes. If you do not use your entire tax credit in the year you claim it, you can carry it over for up to five additional years. So, if you claimed a charitable credit in 2015, you could apply it to your 2015, 2016, 2017, 2018, 2019, and/or 2020 state income taxes.
Is the Arizona Charitable Tax Credit refundable?
No. If your tax credit is greater than your taxes owed, you do not receive a refund for the difference. For example, suppose your tax bill is $600. If you and your spouse donated $800, you have a charitable credit of $800 to apply for your bill. You could use $600 of your credit to reduce your tax bill to $0. But you cannot receive a refund of the $200 leftover. Instead, you would carry it over to a subsequent tax year to reduce that year’s tax bill.
However, your tax credit will increase your tax refund if you had money withheld from your paycheck. So, suppose your employer withheld $1,200 from your paycheck for state taxes, and your tax bill is exactly $1,200. Without a charitable donation, you would receive no refund from the state of Arizona for your income taxes. But with a $400 charitable donation, your Arizona Charitable Tax Credit reduces your tax bill to $800, and you receive a $400 tax refund from your employer’s withholding.
The Arizona Charitable Tax Credit can substantially lower your tax liability to the state of Arizona. By reducing your tax bill, you can earn a financial reward for your charitable donation.
