Learn and understand Arizona tax credits with Amy Wall, EA, MBA
At last, Arizona Tax Credits explained in simple, easy to understand English! Keep your tax money here in Tucson's schools and charities.
Video produced by Black Butterfly Productions
Last-minute Arizona tax credit changes: Starting in 2016, you can make both private and public school donations after January 1st but before April 15th, 2016.
Links referenced in this video
- Qualified charitable credits
- Qualified foster care credits
- Private school tuition charitable credits
- Public school credits
- Military relief fund credit
My name is Amy Wall. I'm an Enrolled Agent - a federally licensed tax practitioner- and today I'm going to talk about Arizona tax credits. This is a very confusing topic simply because most people don't know the difference between a credit and the deduction and so they don't understand how Arizona tax credits work. I'm here today to try to explain how to think about Arizona tax credits as an alternate way of paying Arizona tax. Forget the word credit, it's too hard. This is a way of paying Arizona tax.
Most of us pay our Arizona tax through W2 withholding or estimated payments during the year or sucking up and writing a big check in February or March. Instead you can pay a good part if not all of your Arizona tax by making tax credit donations.
There are five categories of tax credit donations and you can donate into every single one of the categories or just one. This is totally up to you. The difference between paying your Arizona tax through withholding and paying it through tax credit donations is that YOU get to choose where your tax money goes. Instead of sending the money up to Phoenix and leaving it up to them, you get to pick.
The five categories are Charity, Foster Care, Public School, Private School Tuition Organizations and Military Relief. The details - there's always fine print - the fine print in this case is how much you can give, who can you give it to and when must you give it by.
Let's start with the Charity Credit. You can give it to any charity that's on the Arizona Department of Revenue approved list. Let me show you how you get to the list. You don't have to go through the Arizona Department of Revenue website. Instead, we've made this really easy for you, as we keep these links current. You go to my website, TucsonTaxTeam.com, scroll down about two thirds of the way and you'll see important Arizona tax credit information. Click on charity and then click on download the list, and there it is. Any organization that's on this list qualifies for this tax credit. How much can you give? Single married filing separately and head of household four hundred dollars; if you're married filing jointly eight hundred dollars.
Second, the foster care credit. It works much the same. Again, you can find the list on my website. The numbers here for single, married filing separately and head of household $500; if you're married filing jointly $1,000.
Public schools - there is no list because frankly it’s any Arizona public school. The list would be super long and they would have to pay 10 people to keep it up-to-date! So instead we just say any Arizona public school. The numbers are two hundred dollars for single, married filing separately and head of household; four hundred dollars for married filing jointly.
I'm going to skip over now to the military relief credit. This one is a little bit different. They are only allowed to collect up to 1 million dollars so you want to make sure before you give the money that they haven't hit their goal yet. I'm going to show you how to do that. Once again you go to my website, scroll down. click on military relief credit and then here's the link that tells you where they are in reaching their goal of the million dollars. Two dollars and four hundred dollars and once again the date is December 31st of the tax year in question.
I've saved the best for last and that's the private school tuition organization. These are the guys who can afford to pay lobbyists in Phoenix so things are a little different for the private school tuition organization. There is a list on my website; click on private school tuition organization, click on download the list. This is the list of approved tuition organizations that can accept this credit. the numbers here are really different. Single, married filing separately and head of household 1087 dollars; married filing jointly 2173 dollars.
With all these credits a person single, married filing separate or head of household could donate up to two thousand three hundred eighty-seven dollars. Married filing jointly up to 4773 dollars. For most of us this would pay our Arizona tax in full.
Frequently asked questions: the most common one is how should I give? I have no idea how much my Arizona tax is. Usually last year's tax return is a pretty good starting point, so just pull out last year's tax return. If you filed a standard 140 it’s line 51; if you filed the short-form, it’s line 23. This was last year's tax. This gives you a pretty good idea of what you can donate for 2016. Now what if you give too much? You overestimated or something changed in your taxes. No problem; except for the military relief credit, the credits can roll forward up to five years. For my clients I track what's rolling forward year to year and we make a plan for the coming year as to what they should give in each category. You have to work hard to screw this up.
OK, next frequently asked question is gosh, Amy, this sounds great but it's already toward the end of the year, sure wish you told me because I've already had W-2 withholding and I don't want to lose it. You won't lose it they will refund it. The Arizona Department of Revenue will refund your withholding.
Let me take you through a couple of examples here. I know this gets a little confusing. Let's say you had Arizona income tax of twenty-five hundred dollars, w2 withholding of nothing. But you got with the program here and you’ve made Arizona tax credit donations. You're married filing jointly so you've paid $400 to a charity, 400 dollars to a public school and four hundred dollars to foster care. That's twelve hundred dollars. So when we do your taxes and we say, oh, you still owe thirteen hundred dollars we just write the check to private school tuition organization of your choice and we're done. Nothing to roll forward, nothing to do.
Different example: again very filing jointly. Arizona income tax of $2500 but let's say that you also had W-2 withholding of $1,500. But let's say you're excited by this concept and you want to get with this program so you donate three thousand dollars total to different organizations. What's the result? Your $2500 tax is paid in full by your donations; your W-2 withholding of $1,500 is refunded to in full and you have a remaining credit of five hundred dollars which rolls forward to the next year.
So you see it's almost too good to be true which is why people don't believe it! But it is true.
Last frequently asked question is these are donations. so does this mean I can deduct it as well? And the answer is yes, if you itemize on your federal return you can also deduct these donations so it's a smokin’ deal.
If you have any questions about this, I'd love to help you. Just give me a call or shoot me a quick email and let's see how I can help. Thanks so much for listening.
The five tax credits
- Public school credit
- School tuition organization credit
- Qualified charitable credit
- Qualified foster care credit
- Military relief fund credit
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