Don’t File Your Arizona State Tax Return Before Reviewing These 5 Credits
The State of Arizona provides an incredible opportunity for taxpayers to redirect their tax dollars to causes they care about without any additional cost.
In fact, a married couple could send over $4,500 to qualifying causes and get a dollar-for-dollar tax credit, which means there would likely be a zero net-cost. You are effectively redirecting your tax dollars away from the public coffers and directly into worthy causes.
Let’s examine five programs that are available to individual taxpayers and review how to report and claim the credits on your tax return.
#1. Qualifying Charitable Organizations
There are hundreds of eligible Qualifying Charitable Organizations (QCOs) in this program and you can search this online resource for a full listing of qualified organizations. The maximum amount of this credit is $800 for married couples filing jointly and $400 for all other filers. You can use Form 321 to claim this credit.
#2. Qualifying Foster Care Charitable Organizations
There are a few dozen eligible Qualifying Foster Care Charitable Organizations (QFCOs) in this program and you can search this full list of qualifying organizations online. The maximum amount of this credit is $1,000 for married couples filing jointly and $500 for all other filers. You can use Form 352 to claim this credit.
#3. Public School Tax Credit
Contributions to public schools and fees for eligible activities such as extracurricular programs, standardized testing fees, and prep courses may qualify for the Public School Tax Credit. The maximum amount of this credit is $400 for married couples filing jointly and $200 for all other filers. You can use Form 322 to claim this credit and more information about qualifying expenses can be found here.
#4. Credit for Contributions to Private School Tuition Organizations
Contributions made to a Certified School Tuition Organization, which provides scholarships to students at Arizona private schools, are eligible for this credit. The maximum amount is $1,245 for married couples filing jointly and $623 for all other filers in 2022. You can use Form 323 to claim this credit. You will not qualify for the credit if you designate your donation for the direct benefit of your dependent or make other arrangements to directly benefit your dependent.
#5. Credit for Contributions to Certified School Tuition Organizations
If you donate the maximum amount to the Private School Tuition Organizations (see #4), you will be eligible to claim credits for additional donations made to a Certified School Tuition Organization. The maximum amount of this credit is $1,238 for married couples filing jointly and $620 for all other filers in 2022. You can use Form 348 to claim this credit. You will not qualify for the credit if you designate your donation for the direct benefit of your dependent or make other arrangements to directly benefit your dependent.
You can make your donations throughout the year and up until April 15th following the end of the tax year. Be sure to document your donations and keep track of each organization’s details, such as their QCO of QFCO code.
How It Works
You can offset up to the full amount of your tax liability, regardless of the amount of tax you paid throughout the year. Your tax liability can be found on line 46 of your AZ Form 140. All of your charitable tax credits will be summarized and consolidated on Form 301. If your credits exceed your total liability, you are eligible to carryover credits to future years.
If your tax liability was $5,000 and you paid in $5,000 throughout the year, you would neither owe money nor be due a refund prior to any credits. A married couple who maximized the value of each tax credit listed above would be able to claim as much as $4,565 in tax credits, which would generate a refund of $4,565 – a full 100% return for the donations made. If you owe money on your Arizona tax return, qualifying charitable donations could eliminate your balance due or create a refund. If you are already in a refund position, qualifying tax credits will likely increase the size of your refund.
What’s the Easiest Way to Take Advantage of These Arizona Tax Credits?
Start by identifying the qualifying organizations you would like to support. Then, during tax season, review a draft of your Arizona return before it’s filed to determine your AZ tax liability. Once you know your liability, you’ll know how much credit you can take, because your total credits can’t exceed your total liability. Then you can go ahead and make your donations, up until April 15th and it will still count for the previous year. You’ll receive some documentation from your donations, which you can then use to file your AZ return. The credits that you claim will directly offset what you owe, which creates a dollar-for-dollar decrease in the size of the check you need to write or increase the size of your refund, depending on how much you already paid to the state.
This is intended for informational purposes only and should not be construed as personalized financial advice. Please consult your accountant or tax preparer regarding your unique circumstances.