2018 Arizona tax credits

Still going strong

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Melinda Nelson, CPA

The 2018 tax year has brought lots of changes after the Tax Cut and Jobs Act bill passed at the end of 2017. One change that received much coverage is the new itemized deduction limit of $10,000 for state and local taxes. Little did Congress imagine what a large effect this would have on the Arizona charitable and school tax credits.

Since the new $10,000 limitation is especially painful in high-income tax or property tax states, many states have looked for ways to help residents avoid the limitation. One idea states immediately began to discuss – tax credit programs like Arizona’s. Many of our tax credits have allowed taxpayers to receive a federal charitable deduction AND a $1 for $1 state tax credit for making qualified donations to certain organizations. Since this would be useful in avoiding the $10,000 limitation, other states began creating similar programs at the beginning of this year.

But, the IRS had other thoughts and issued proposed regulations in August to put an end to the dual benefit of getting a tax credit while also deducting the payment as a federal charitable donation.

So, where are we at today? For 2018 under the proposed regulations, a qualifying contribution to an Arizona tax credit program:

  • If made before August 28, may qualify as both a federal charitable deduction and the Arizona tax credit.
  • If paid after August 27, qualifies for the Arizona $1 for $1 tax credit, but no charitable deduction allowed.

Today’s bottom line benefit of doing an Arizona tax credit? Getting to support organizations you believe in while receiving an Arizona credit for doing so. Below are the 2018 available credits.

Credit for Contributions to Private School Tuition Organizations

The 2018 maximum credit amount for the contributions to Private School Tuition Organizations increased slightly to:

  • Single taxpayers: $555
  • Married filing joint: $1,110

Your donation must go to a tuition organization that provides scholarships or grants to qualified private schools.

Credit for Contributions to Certified School Tuition Organizations (Plus/Switcher Credit)

There’s also a slight increase in the 2018 amounts for the tax credit for contributions to Certified School Tuition Organizations:

  • Maximum credit single taxpayers: $552
  • Married filing joint: $1,103

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Remember, you must first donate the maximum amount allowed to a private school tuition organization to claim this credit.

If you donate to both tuition organizations, the maximum combined credit for single taxpayers is $1,107 and $2,213 for married filing joint. If you make a qualifying donation between January 1, 2019 and April 15, 2019, you can choose to either claim the credit on your 2018 or 2019 tax return.

Credit for Contributions Made or Fees Paid to Public Schools

2018 amounts:

  • Maximum credit single taxpayers: $200
  • Married filing joint: $400

You qualify for this Arizona credit if you donate or pay fees to a public school to help support extracurricular activities or character education programs. This credit also allows you to make a qualifying contribution or pay fees between January 1, 2019 and April 15, 2019 and claim it for either 2018 or 2019.

New this year: the Arizona Department of Revenue is now requiring taxpayers to report the school’s County Code, Type Code and District Code and Site Number (CTDS) number on Arizona returns for contributions or fees made on Form 322. To find a school’s CTDS number, click here.

You can claim ALL three education credits in the same year even if you don’t have a child in school.

S Corporation Private School Tuition Credits

If you’re a shareholder for an S Corporation, there are two corporate private school tuition tax credits that the entity can pass on to you. You will receive an Arizona Form 335-S and/or Form 341-S showing the amount you can claim on your individual tax return. You can still claim one of these credits even if you have already claimed the maximum amount under the two-individual private school tuition credit programs.

Credit for Contributions to a Qualified Foster Care Organization 

2018 amounts for contributions to organizations that benefit Arizona foster care children:

  • Maximum credit single taxpayers: $500
  • Married filing joint: $1,000

Credit for Contributions to a Qualifying Charitable Organization 

2018 amounts for contributions to organizations that aid Arizona residents:

  • Maximum credit single taxpayers: $400
  • Married filing joint: $800

You may claim either credit (QFCO/QCO), or both, in the same taxable year. Also, if you get busy during the holidays and forget to donate before December 31, if you make a qualifying contribution between January 1, 2019 and April 15, 2019, you can claim these credits for either 2018 or 2019.

New this year: To claim these credits, you must now include the five digit QFCO or QCO code assigned by the Arizona Department of Revenue. For a list of these codes, as well as qualifying organizations for the credits, head to the Arizona Department of Revenue’s website.

Credit for Donations to the Military Family Relief Fund

The Military Family Relief Fund is limited to $1 million in credit donations each year. This year the $1 million in credits was reached in August, so you’ll have to wait until 2019 to apply. This credit helps families of soldiers who are deployed now as well as post 9/11 military and veteran families.

New planning

Will the change in the rules related to the federal deduction of Arizona tax credits change giving? For many Arizona taxpayers, 2018 will usher in the end of itemized deductions and the related tax benefit of charitable deductions. Instead, many taxpayers will deduct the new higher standard deduction of $24,000 for married filing joint and $12,000 for single filers.

Most importantly, if how your tax dollars are spent is important to you, or you believe in the mission of one of Arizona’s many qualifying organizations, continue to make donations under the Arizona tax credit programs.

Melinda Nelson, CPA, Partner, specializes in tax planning and compliance involving closely held businesses and their owners as well as estate, gift + trust taxation. You can reach Melinda at (480) 839-4900 or MelindaN@hhcpa.com.