AZ State Tax Credit or Tax Deductible Donation

AZ State Tax Credit or Tax Deductible Donation- What is the difference?

Many Arizona taxpayers are confused about the difference between a AZ State Tax Credit and a Tax Deductible Donation. The following information is not meant to be used for income tax advice, only to distinguish the difference between two different types of donations. Please contact your income tax advisor for tax advice. Please remember that you can make a donation to both types of tax credits and receive the tax incentives of both.

An Arizona Tuition Tax Credit Donation is a donation that constitutes a credit against the AZ state taxes owed during the taxable year. For example if a single tax payer owed $500 in taxes for a given tax year and gave a $200 AZ Tuition Tax Credit Donation to a public school, he or she would only owe the difference, or $300 when his or her taxes for that year were filed.
An Arizona Working Poor Tax Credit Donation is a donation that constitutes a credit against the AZ state taxes owed during the taxable year. The Working Poor Tax Credit is different from the Tuition Tax Credit in that a baseline for charitable giving must be established. The amount of the credit is the amount of qualifying contributions that exceed the baseline amount. For example, if a taxpayer has a baseline amount of $300, the taxpayer must give $500 in total contributions that includes $200 to a qualifying charitable organization to receive a $200 tax credit. Please see your accountant if you have any questions.
A Tax Deductible Donation is a voluntary donation made to a charity or foundation with an IRS designated tax deductible status without getting anything of equal value. Generally, you can deduct your contributions of money or property that you make to a qualified organization from your adjusted gross income. To deduct a charitable contribution, you must file Form 1040 and itemized deductions Schedule A.

AZ Tuition Tax Credit Donation Information

43-1089.01. Tax credit; public school fees and contributions; definitions

A. A credit is allowed against the taxes imposed by this title for the amount of any fees or cash contributions made by a taxpayer during the taxable year to a public school located in this state for the support of extracurricular activities or character education programs of the public school, but not exceeding:

1. Two hundred dollars for a single individual or a head of household.

2. Three hundred dollars in taxable year 2005 for a married couple filing a joint return.

3. Four hundred dollars in taxable year 2006 and any subsequent year for a married couple filing a joint return.

B. A husband and wife who file separate returns for a taxable year in which they could have filed a joint return may each claim only one-half of the tax credit that would have been allowed for a joint return.

C. The credit allowed by this section is in lieu of any deduction pursuant to section 170 of the internal revenue code and taken for state tax purposes.

D. If the allowable tax credit exceeds the taxes otherwise due under this title on the claimant's income, or if there are no taxes due under this title, the taxpayer may carry the amount of the claim not used to offset the taxes under this title forward for not more than five consecutive taxable years' income tax liability.

E. The site council of the public school that receives contributions that are not designated for a specific purpose shall determine how the contributions are used at the school site. If a charter school does not have a site council, the principal, director or chief administrator of the charter school shall determine how the contributions that are not designated for a specific purpose are used at the school site.

http://www.azleg.gov/FormatDocument.asp?inDoc=/ars/43/01089-01.htm&Title=43&DocType=ARS

AZ Working Poor Tax Credit Donation Information

43-1088 Tax credit; credit for contributions to a qualifying charity that provides assistance to the working poor; definitions

For a list of Self Certifiable Charitable Organizations click here.

A. For taxable years beginning from and after December 31, 1997, a credit is allowed against the taxes imposed by this title for voluntary cash contributions made by the taxpayer during the taxable year to a qualifying charitable organization as determined pursuant to subsection F of this section, but not exceeding:

1. Two hundred dollars in any taxable year for a single individual or a head of household.

2. Three hundred dollars in taxable year 2005 for a married couple filing a joint return.

3. Four hundred dollars in taxable year 2006 and any subsequent year for a married couple filing a joint return.

C. If the allowable tax credit exceeds the taxes otherwise due under this title on the claimant's income, or if there are no taxes due under this title, the taxpayer may carry forward the amount of the claim not used to offset the taxes under this title for not more than five consecutive taxable years' income tax liability.

D. The credit allowed by this section is in lieu of a deduction pursuant to section 170 of the internal revenue code and taken for state tax purposes.

E. Taxpayers taking a credit authorized by this section shall provide the name of the qualifying charitable organization and the amount of the contribution to the department of revenue on forms provided by the department.

F. The credit under this section applies only to contributions to qualifying charitable organizations that exceed the total amount deducted pursuant to section 170 of the internal revenue code in the taxpayer's baseline year. The taxpayer's baseline year is:

1. The 1996 taxable year if the taxpayer deducted charitable contributions pursuant to section 170 of the internal revenue code in the 1996 taxable year.

2. If the taxpayer did not deduct charitable contributions pursuant to section 170 of the internal revenue code in the 1996 taxable year, the taxpayer's baseline year is the first taxable year after 1996 that the taxpayer deducted charitable contributions pursuant to section 170 of the internal revenue code.

G. A qualifying charitable organization shall provide the department of revenue with a written certification that it meets all criteria to be considered a qualifying charitable organization. The organization shall also notify the department of any changes that may affect the qualifications under this section. The department shall compile and make available to the public a list of the qualifying organizations.

H. For the purposes of this section:

1. "Low income residents" means persons whose household income is less than one hundred fifty per cent of the federal poverty level.

2. "Qualifying charitable organization" means a charitable organization that is exempt from federal income taxation under section 501(c)(3) of the internal revenue code or is a designated community action agency that receives community services block grant program monies pursuant to 42 United States Code section 9901. The organization must spend at least fifty per cent of its budget on services to residents of this state who receive temporary assistance for needy families benefits or low income residents of this state and their households. Taxpayers choosing to make donations through an umbrella charitable organization that collects donations on behalf of member charities shall designate that the donation be directed to a member charitable organization that would qualify under this section on a stand-alone basis.

3. "Services" means cash assistance, medical care, child care, food, clothing, shelter, job placement and job training services or any other assistance that is reasonably necessary to meet immediate basic needs and that is provided and used in this state.

http://www.azdor.gov/brochure/710.pdf

Income Tax Deductible Donation Information

Please see the following site for information on claiming income tax deductions:

http://www.irs.gov/pub/irs-pdf/p526.pdf

Foundation Status

While its 501(c)(3) status determines that an organization is eligible to receive tax deductible donations, its foundation status determines the limits of an individual donor's deduction.

The three principal classifications of 501(c)(3) organizations are as follows:

A public charity (identified in IRS terms as "not a private foundation") normally receives a substantial part of its income, directly or indirectly, from the general public or from the government. The public support must be fairly broad, not limited to a few individuals or families. Public charities are defined in the Internal Revenue Code under sections 509(a)(1) through 509(a)(4).

A private foundation, sometimes called a non-operating foundation, receives most of its income from investments and endowments. This income is used to make grants to other organizations, rather than being disbursed directly for charitable activities. Private foundations are defined in the Internal Revenue Code under section 509(a) as 501(c)(3) organizations which do not qualify as public charities.

A private operating foundation is a private foundation that devotes most of its earnings and assets directly to the conduct of its tax exempt purposes, rather than to making grants to other organizations for these purposes. Private operating foundations are defined in the Internal Revenue Code under section 4942(j)(3).

Deductibility Limitations to 501(c)(3) Groups

Individuals giving to 501(c)(3) organizations that are either public charities, private operating foundations, and certain private foundations may deduct contributions representing up to 50% of the donor's adjusted gross income if the individual itemizes on his tax returns. The 1986 Tax Reform Act, which become effective January 1, 1987, does not allow non-itemizers to deduct charitable donations on their federal income tax returns.

Individuals giving to 501(c)(3) organizations that are private foundations may generally deduct contributions representing up to 30% of their adjusted gross income.

Corporations may deduct all contributions to 501(c)(3) organizations (regardless of foundation status) up to an amount normally equal to 10% of their taxable income.

http://www.give.org/tips/tax.asp

Recent Tax Law Changes May Affect People Giving to Charity: IRS Offers Tips for Year-End Donations

IR-2006-192, Dec. 14, 2006

WASHINGTON — Individuals and businesses making contributions to charity should keep in mind several important tax law changes made last summer by the Pension Protection Act.

The new law offers older owners of individual retirement accounts a new way to give to charity. It also includes rules designed to provide both taxpayers and the government greater certainty in determining what may be deducted as a charitable contribution. Some of these changes include the following.

Guidelines for Monetary Donations

To deduct any charitable donation of money, a taxpayer must have a bank record or a written communication from the charity showing the name of the charity and the date and amount of the contribution. A bank record includes canceled checks, bank or credit union statements and credit card statements. Bank or credit union statements should show the name of the charity and the date and amount paid. Credit card statements should show the name of the charity and the transaction posting date.

Donations of money include those made in cash or by check, electronic funds transfer, credit card, and payroll deduction. For payroll deductions, the taxpayer should retain a pay stub, Form W-2 wage statement or other document furnished by the employer showing the total amount withheld for charity, along with the pledge card showing the name of the charity.

Prior law allowed taxpayers to back up their donations of money with personal bank registers, diaries or notes made around the time of the donation. Those types of records are no longer sufficient.

This provision applies to contributions made in taxable years beginning after Aug. 17, 2006. For taxpayers that file returns on a calendar-year basis, including most individuals, the new provision applies to contributions made beginning in 2007.

The new law does not change the prior-law requirement that a taxpayer get an acknowledgement from a charity for each deductible donation (either money or property) of $250 or more. However, one statement containing all of the required information may meet the requirements of both provisions.

To help taxpayers plan their holiday-season and year-end donations, the IRS offers the following additional reminders:

Contributions are deductible in the year made. Thus, donations charged to a credit card before the end of the year count for 2006. This is true even if the credit-card bill isn’t paid until next year. Also, checks count for 2006 as long as they are mailed this year.
Check that the organization is qualified. Only donations to qualified organizations are tax-deductible. IRS Publication 78, available online and at many public libraries, lists most organizations that are qualified to receive deductible contributions. The searchable online version can be found on IRS.gov under, “Search for Charities.” In addition, churches, synagogues, temples, mosques and government agencies are eligible to receive deductible donations, even though they often are not listed in Publication 78.
For individuals, only taxpayers who itemize their deductions on Schedule A can claim a deduction for charitable contributions. This deduction is not available to people who choose the standard deduction, including anyone who files a short form (1040A or 1040EZ). A taxpayer will have a tax savings only if the total itemized deductions (mortgage interest, charitable contributions, state and local taxes, etc.) exceeds the standard deduction. Use the 2006 Schedule A, available now on IRS.gov, to determine whether itemizing is better than claiming the standard deduction.
For all donations of property, including clothing and household items, get from the charity, if possible, a receipt that includes a description of the donated property. If a donation is left at a charity’s unattended drop site, keep a written record of the donation that includes a description of the property and its condition.
The deduction for a motor vehicle, boat or airplane donated to charity is usually limited to the gross proceeds from its sale. This rule applies if the claimed value of the vehicle is more than $500. Form 1098-C, or a similar statement, must be provided to the donor by the organization and attached to the donor’s tax return. See IRS Publication 526, Charitable Contributions, for more information.

http://www.irs.gov/newsroom/article/0,,id=164997,00.html