Monday, November 28, 2005

Loopholes for Everybody (Only in Arizona, and not quite everybody, but give anyway)

Those of you from outside Arizona may not realize exactly how the Arizona income tax system is semi-voluntary; you get to decide whether to pay taxes or make contributions to legislatively-favored charities. I remind East Valley Tribune readers of the importance of playing tax credit bingo each year around Thanksgiving; I hope we get some new people each year in the habit of giving.

If you want to see the column as it ran in the paper, click here or if that link fails (as it will in 2 weeks), try the printer-ready link here. I've redone the column to include links for online charitable forms below, without the neat drawings and internal headers my editor provided.

I'm also recommending to everybody an article by Linda Hirschman in The American Prospect. Linda speaks for herself and doesn't need me to blurb her stuff. But if you need a blurb, consider it done.

East Valley Tribune, Nov. 27, 2005

It’s time for your annual reminder to take full advantage of Arizona’s many tax loopholes. A menu of state tax credits lets you make certain types of contributions instead of paying taxes, so generosity ultimately won’t cost you anything.

Playing the Arizona tax-credit game requires that you itemize deductions, aren’t subject to Alternative Minimum Tax, and have the cash on hand before Dec. 31. If so, make a contribution, then get an exact credit against your state income tax, while your federal taxes remain unchanged because you’ve merely swapped a state tax deduction for a charitable one. Net cost to you: Zero.

And thanks to some surprises when the legislature conformed the Arizona tax code to changes Congress made to the Internal Revenue Code, the credit limits have increased -- for married taxpayers only, however.

First, there’s the credit for donations to “private school tuition organizations” [these next 3 links are to last year's forms, but the form numbers won't change; check back at the Arizona Department of Revenue website after January 1]. You contribute to a PSTO by Dec. 31, then get a dollar-for-dollar credit against your Arizona income tax in April. The limit is $500 for individuals, but for married couples this year it’s $800, and next year it’s $1,000.

There are about five dozen PSTOs in Arizona, but please consider writing your check to Schools With Heart, 1131 E. Highland, Phoenix, AZ 85014, or click here; designate your check for the Family School, a unique school serving children from diverse backgrounds.

Second, taxpayers also can take a separate-but-not-equal credit for public school contributions [last year's form]. Single taxpayers can give and get back up to $200, while the limit for married taxpayers increases this year to $300 and next year to $400. You must write the check directly to the school, not to a PTO or foundation.

Please consider a gift to the Isaac School District, 3348 W. McDowell Road, Phoenix, AZ 85009, or click here [note: The amount listed on form was not updated for the 2005 legislation], or call (602) 455-6700. Inner-city Isaac receives only a fraction of the tax credit donations that wealthier suburban districts can collect. The state tax credit is “reverse Robin Hood” legislation, taking from below-median taxpayers (who also can’t itemize) and assisting upper-median districts, whose schools don’t face nearly the challenge that Isaac does, with the vast majority of its students (more than 90 percent) at or below poverty level and in non-English-speaking homes (about two-thirds). Make Arizona school finance slightly less perverse by contributing to Isaac, at no cost to you.

Third, donations to charities assisting low-income residents qualify for another tax credit [again, last year's form], (provided your gift is above your “baseline” charitable giving). The credit for single taxpayers is $200 but increases this year for married taxpayers to $300, and to $400 in 2006. As a board trustee, I can strongly recommend that you make one of these free contributions to Devereux Arizona, which is part of the nation’s largest nonprofit provider of behavioral health services.

Most children Devereux serves in Arizona are in foster care and residential programs, and most of these children come from abusive or neglectful homes. Devereux’s “My Little Stocking” fund pays for holiday gifts for children who wouldn’t otherwise get anything, and who already have suffered greater losses than most of us even can imagine. Send your check to Devereux at 11000 N. Scottsdale Road, Suite 260, Scottsdale, AZ 85254, or contribute online here, or call (480) 998-2920 ext. 2105.

Fourth, you can help fund Arizona’s system of publicly-financed elections. You can help reduce lobbyist influence and encourage public participation, all for free. The limits are quite high; $550 for individuals and $1,100 for couples, or up to 20% of your total state tax liability -- whichever is more. Send your check to the Citizens Clean Election Fund at 1616 W. Adams, Suite 110, Phoenix, AZ 85007. You can't contribute online, but the form to accompany your contribution is here.

Finally, consider giving something that also won’t cost you a penny -- your blood. The holidays always seem to stretch blood supplies, so it’s a perfect time to schedule a donation. You can call United Blood Services at (602) 431-9500, or make an appointment online.

Don’t let 2005 end without taking as much advantage as you can of Arizona’s upside-down tax system. If you live here, it’s the law, so make our community a slightly better place by writing some no-cost-to-you checks before year’s end.

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