Tax credits keep taxes in Sedona4 min read

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As the year comes to a close, schools and nonprofit organizations around Arizona will begin asking taxpayers to donate their tax credits for 2010.

Some taxpayers are confused about how the tax credit program works while other think they must choose a public school, a private school or a nonprofit and cannot do all three. In the end, people often feel pulled between their children’s schools and their favorite charity helping the poor, unsure of which group deserves their tax credit most.

However, Arizona actually offers three different tax credits, each of which can be used without affecting eligibility for the other two.

If a taxpayer donates to all three by the end of the year, the credits allow a single filer to donate up to $900 and a married couple filing jointly to donate up to $1,800.

The tax credits are only applicable to taxes owed to the state through the Arizona Department of Revenue, not the federal Internal Revenue Service. However, taxpayers can itemize the credit as a charitable donation when filing their federal taxes. In some instances, such a donation may lower taxpayers into another tax bracket, making it possible to actually save money by giving it away.

One of the benefits of the tax credits is money stays local. Area schools and charities directly benefit rather than having to wait for the state to collect and then redistribute funding.

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A tax credit differs from a tax deduction. A credit is a dollar-for-dollar exchange in taxes owed.

For example, a married couple assumes they may owe the state of Arizona $1,900 in taxes. Before Friday, Dec. 31, 2010, they can donate $400 to a public school for extracurricular activities, another $400 to a qualified nonprofit and $1,000 for private school tuition.

The couple will still pay the $1,900 they owe, but they choose the recipients and the state only gets $100 directly in taxes.

Suppose, however, after completing their 2010 taxes in April, they only owe the state $1,000. Their tax liability drops to $0 for 2010 and the other $900 they donated rolls over a credit for the 2011 tax year. Credits can roll over for up to five years.

Arizona taxpayers can donate to all three tax credits in the same year.

Charitable Tax Credit

  • Single taxpayer: $200
  • Married taxpayers filing jointly: $400

An individual income tax credit is for contributions to groups helping the working poor.

To claim the credit, taxpayers must report the name of the charitable organization and dollar amount of the donation.

More than 400 charities across Arizona are eligible for the donation credit. For the full list, visit the Arizona Department of Revenue website. Donations made to those not eligible for the tax credit can still be used for an itemized deduction.

Taxpayers can not use the same donation for both a credit and a deduction, although they can donate to the same organization for both. For example, an unmarried taxpayer can make one $200 donation to earn the tax credit and another $200 for a regular itemized deduction.

Public School Tax Credit

  • Single taxpayer: $200
  • Married taxpayers filing jointly: $400

To qualify, taxpayers must make cash contributions or pay fees to a public school or charter school for support of extracurricular activities or for character education programs.

Defined by each school district, a character education program includes instruction in truthfulness, responsibility, compassion, diligence, sincerity, trustworthiness, respect, attentiveness, obedience, orderliness, forgiveness and/or virtue.

Public schools and charter schools teaching kindergarten through high school are eligible. Nongovernmental schools, preschools, community colleges and universities do not qualify.
Extracurricular activities mean school-sponsored activities that require a fee to participate, such as fees for band or sports uniforms, scientific equipment or materials or trips for competitive events.
Preschool students, except handicapped students, and adult education students are not included.
Donations must be made directly to the school or school district, not student associations, foundations or clubs.

Private School Tuition Credit

  • Single taxpayer: $500
  • Married taxpayers filing jointly: $1,000

To qualify, taxpayers must make contributions to a tuition organization that provides scholarships or grants to qualified schools. Charter schools do not qualify; they are classified under the Public School Tax Credit.

A school tuition organization is a 501(c)(3) nonprofit that allocates at least 90 percent of annual revenue to scholarships or grants, and makes them available to students of more than one qualified school. The organization does not have to grant scholarships to students to more than one school in a calendar year but must have a list of schools it is willing to provide scholarships to.

A qualified school is a nongovernmental preschool for the handicapped, or a nongovernmental primary or secondary school in Arizona. The school cannot discriminate on the basis of race, color, handicap, familial status or national origin. All boys or all girls schools are eligible.

For more information, visit the Arizona Department of Revenue website or contact a professional tax preparer.

Christopher Fox Graham

Christopher Fox Graham is the managing editor of the Sedona Rock Rock News, The Camp Verde Journal and the Cottonwood Journal Extra. Hired by Larson Newspapers as a copy editor in 2004, he became assistant manager editor in October 2009 and managing editor in August 2013. Graham has won awards for editorials, investigative news reporting, headline writing, page design and community service from the Arizona Newspapers Association. Graham has also been a guest contributor in Editor & Publisher magazine and featured in the LA Times, New York Post and San Francisco Chronicle. He lectures on journalism and First Amendment law and is a nationally recognized performance aka slam poet. Retired U.S. Army Col. John Mills, former director of Cybersecurity Policy, Strategy, and International Affairs referred to him as "Mr. Slam Poet."

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