Tax Insights

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Arizona credits to qualifying charitable and qualifying foster organizations

charitable contributions, itemized deductions, donations, tax, taxes, deductions, charityIt isn’t very often that a tax partner (me) and our nonprofit partner (Colette) are attending the same presentation. Oh sure, there are the random events where the firm has a table, and we may be together. And, of course, partner meetings. And when she helps with my nonprofit clients (all three of them!) But other than that, not so much. Which, on a side note, is a pity – because we get along superbly (at least in my mind)!

Anyway, we were attending the same presentation because her nonprofit client was sponsoring it, and one of my tax managers was part of the presentation.

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The topic was on Arizona tax credits. We have had these tax credits in Arizona for a long time – decades, even. Until August 27, 2018, the amount that was given to these charities could be taken as a charitable contribution on your federal income tax return, and a dollar for dollar credit on your Arizona income tax return. But then came the Tax Cuts and Jobs Act and the $10,000 state and local tax limitation and that came to an end.

All of that has been addressed before but here is where it took an even uglier turn for us in the tax department last tax season. Arizona started notifying charities that they needed to get recertified in order to qualify for taxpayers to take the credit. But here was the trick – if they got recertified in 2019, as a qualifying charitable organization, but the taxpayer made the contribution in 2018 when they were a qualifying foster charitable organization, there was a hiccup. Because the return was filed in 2019, even if for 2018, Arizona said it was the current bucket that the contribution fell into. The potential problem for taxpayers was that there is a limit on how much can be made to each type of organization – so some may have thought they were contributing for differing buckets, but then they ended up in the same bucket.

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To be completely fair, I do believe that Arizona said they will start the recertification processes earlier in the year now – July/August and not December, which is what caused this problem.

So the moral of the story is to check the recertification dates of the charities and make sure your contribution is going where you thought. So even though now you will not lose out on a federal deduction, you may lose out on an Arizona credit.

Consult your Henry + Horne tax professionals for more details on charitable donations and taxes.

Donna H. Laubscher, CPA