The Arizona Department of Revenue (AZDOR) offers an attractive tax credit against your AZ income tax liability when you are making charitable donations to certain charities. This would be related to a current gift; it is simple to implement. It can provide an advantage for your AZ income tax situation. It is specific to AZ – doesn’t do a thing for your Federal taxes. The good news is that the 2020 list on the AZDOR website of eligible charities is extensive – it’s 19 pages! There is, however, some news that is not so good. While your gift to many very worthy charities can be used to claim your AZ Charitable Tax Credit, unfortunately Northern AZ Climate Change Alliance (NAZCCA) does not meet the state’s stringent criteria for qualification, so your donations to NAZCCA cannot be claimed for this credit. Among other criteria, the charity must be providing benefit for low-income residents or for people who are chronically ill or physically disabled. The rules also require that the charity must be engaged in work that provides services that meet “immediate basic needs.” Although supporters of NAZCCA may feel that our work is of benefit to ALL AZ residents, and certainly we would consider having clean drinkable water and air fit to breathe to be basic human needs, alas, NAZCCA doesn’t qualify under the rules of the program.
But let’s explore this attractive little perk that AZ offers its taxpayers, so that you are prepared to discuss it with your tax preparer. Let’s lay out a few basics:
This is a credit against a tax liability that you owe. It can’t be used to create (or enlarge) a state income tax refund. If you can’t use all your credit in the year of the gift, you can carry some forward to claim later.
There are several different individual credits you can take; the most common being a $400 credit each individual taxpayer can claim ($800 for married, filing jointly). You may claim multiple credits depending on where you are directing your charitable gifts and, structured properly, you may claim far more than the $400/$800.
You can make contributions up until tax-filing day (April 15, 2021) and claim those against a 2020 liability.
You can’t double-dip. If you are going to be claiming the Charitable Tax Credit against your AZ tax liability for specific donations, you cannot claim those same donations as a state income tax charitable deduction. If eligible, you may be able to take a Federal income tax deduction for those donations.
Although NAZCCA does not meet the stringent criteria set by the State of Arizona to qualify for this particular tax credit, we are a 501(c)(3) charitable entity and contributions to NAZCCA are eligible for both Federal and state income tax deductions. As always, we encourage you to discuss your tax questions with licensed tax counsel. The changes to the tax laws in the past few years, and particularly the rise in the standard deduction, have made income tax filing simpler for many people. The downside to that rise in the standard deduction is that far fewer people are now itemizing deductions – which is where you reap the benefit of charitable deductions for your contributions.
Both the IRS and AZDOR have made accommodations that provide some relief for those taxpayers who had been claiming charitable deductions when itemizing but now use the standard deduction. For Federal filing, when you use the standard deduction, you may claim $300 of your charitable contributions as a charitable deduction. AZ has put into place a similar option for claiming some charitable deductions on top of your state standard deduction. AZ allows you to increase your standard deduction by adding on a figure equal to 25% of the amount you would have claimed if you were to itemize. There is an additional form you must complete and add to your tax return if you are using this option and an extra box to check on the AZ form 140.
NAZCCA would welcome your gift, whether current or future, in whatever amount your heart and finances dictate. You may make your donation here.
Bonnie Lane - Member, Board of Directors
NAZCCA is not licensed to give legal or tax advice and any planned giving strategies you choose to pursue should be discussed with licensed tax and legal counsel