Monday, November 19, 2007

Helping Others At No Cost To Yourself

My annual Arizona tax credit column came out a week earlier than usual this year. It’s no joke about 45 people at our home for Thanksgiving this year, though. Our wedding present to the parents of the bride, who are having the wedding at their house two days later, is having their family, and the groom’s, at our house for Thanksgiving.

East Valley Tribune, Nov. 18, 2007

Thanksgiving comes slightly early this year, and so does my annual explanation-and-exhortation regarding Arizona income tax credits. The state tax code has at least as many credits buried inside as we’ll have guests for Thanksgiving -- so I’ve got to finish this column now to start making stuffing.

Most people understand deductions, which reduce taxable income and therefore lower your taxes, saving you a portion of the donation based on your marginal tax rate. But tax credits are straight-out reductions in your taxes -- below the line, if you will -- and Arizona has several that allow you to reduce you taxes by the amount of your charitable donation. It’s generosity that costs you nothing, provided you’ve got the cash, itemize deductions, and don’t have Alternative Minimum Tax issues.

First, contribute to a "private school tuition organization" for a matching Arizona income tax credit. PSTOs offer scholarships to private schools. Individuals can get a credit of $500; married couples, $1,000.

If you don’t know a PSTO, please consider Schools With Heart, 1131 E. Highland, Phoenix, AZ 85014; designate your check for the Family School, a unique, progressive school serving children from diverse backgrounds. You report your contribution on Form 323 when you file your Arizona taxes and get a full credit up to the cap; you also report the donation as a charitable contribution on your federal return. (Make sure you track the contribution both ways; I forgot to include some Arizona tax credit donations as charitable contributions on my 2005 federal return. Oops.)

Second, there’s a similar-but-smaller tax credit for donations to public schools. (Heaven forbid Arizona should be too generous with public schools!) If single, you can give and get back up to $200; if married, $400. You write the check directly to the school, not to a PTO or foundation, and report this credit on Form 322.

Naturally, better-off school districts seem to get much more tax credit donations; those are the folks with the money to play this game. To help even things out, consider a contribution to the Isaac School District, 3348 W. McDowell Road, Phoenix, AZ 85009, or call (602) 455-6700. Inner-city Isaac, with over 90 percent of its students at or below poverty and about two-thirds from non-English-speaking homes, needs your help more than wealthier suburban schools.

Third, giving to charities assisting low-income residents qualifies for another tax credit if you’re giving above your "baseline" (basically, your charitable contributions in 1996, or the first year you itemized). The credit is $200 for single taxpayers, $400 for couples, and you use Form 321 in April.

I’m on the board, so of course I’d like you to contribute to the behavioral health programs at Devereux Arizona. Some kids in Devereux’s foster care and residential programs won’t get holiday gifts unless you contribute. Please donate to Devereux’s "My Little Stocking" fund; children who otherwise wouldn’t can have a memorable holiday, and you get your contribution refunded on your state taxes. Send your check to Devereux Arizona, 11000 N. Scottsdale Road, Suite 260, Scottsdale, AZ 85254, or call (480) 889-0576.

Fourth, help fund Arizona’s pioneering publicly-financed election system. This tax credit is surprisingly generous, $610 for individuals and $1,220 for couples, or up to 20% of your total state tax liability, whichever is greater. Send your contribution to Citizens Clean Election Fund, 1616 W. Adams, Suite 110, Phoenix, AZ 85007.

Finally, there’s another cost-free donation you can make, and you don’t even have to file a tax form. Give blood. Call United Blood Services at (602) 431-9500, or make an appointment online at Put all those calories you’ll eat this week to good use.

So write some checks by Dec. 31, which reduce your state taxes on April 15. It’s bad public policy and benefits the better-off at the expense of those below the median, and only works for those with the money to spare for 4 months. But who knows? Maybe making "free" contributions will teach you the importance of charity -- even when it isn’t reimbursed.


Raj said...

Hi, your article was very informative, keep up the good work. I have a question for you, best illustrated by an example. Say one donates $500 to charity, and also does a school tax donation of upto 500+200 (private and public) in the baseline year, is the baseline amount calculated using 500+500+200 or just 500. In other words, does the school contribution figure in the baseline amount.

Thanks a lot,

Anonymous said...

Hi Sam,

I'll leave a comment a year after this post, and hope you see it - your post comes up on the first page of Google search results on AZ Tax Credit 321. I hope if you've posted another article for 2008, that you'll go back to update this one and cross link it. Also, I'll stump for the benefits of this Tax Credit with one of my favorite organizations - over at Neighborhood Ministries, on Van Buren & 19th Ave, this funding is put to good use to directly help the working poor and makes a long term difference in the lives of kids and families struggling to survive in South Phoenix. Simultaneously, don't forget there are two more AZ tax credits - one for public schools, and one for private tuition organizations.

Thanks Sam!