The Arizona charitable donation tax credit is a refundable state income tax credit that allows individuals to donate up to $400 and couples up to $800 to certified Qualifying Charitable Organizations and Qualifying Foster Care Charitable Organizations and receive their entire contribution back when they file their Arizona State taxes. This tax credit is similar to the Arizona Public School Tax Credit in that it’s only available for individual taxpayers, can be claimed through payroll withholding, and has a five-year carryover.
In addition, both the IRS and the state of Arizona require donors to substantiate their donations. To learn more about substantiating your charitable contributions, please see page 1 of IRS Publication 526.
The Arizona charitable donation tax credit is a great way to redirect taxpayer funds from the general pool into specific community-serving organizations. Those organizations are then able to use those funds to help improve the lives of local communities. This type of community empowerment is what makes this tax credit program so popular year after year.
The IRS requires taxpayers to substantiate their charitable contributions with appropriate documentation. This includes pledge cards from the charitable organization and a pay stub or W-2 form from the employer. In addition, the state of Arizona requires donors to provide proof of their contributions. Usually, this is done by attaching a donation receipt from the charitable organization to the Arizona state tax return.
While Arizona offers tax credits and deductions, the IRS stipulates that charitable gifts — cash or property — must be claimed as deductions, not credits. This is spelled out in section 1 of IRS Publication 526. If you are a single taxpayer, the maximum amount you can donate to Qualifying Charitable Organizations and Qualifying Foster Care Charitable Organizations is $421 and $526 respectively.
How to Claim the Arizona Charitable Donation Tax Credit?
To claim the Arizona Charitable Donation Tax Credit, you will fill out Arizona Form 321. You will enter the QCO code for your selected organization (e.g., Phoenix Children’s is 20551). This information will then be sent to the Arizona Department of Revenue on your behalf.
Unlike traditional tax deductions, the AZ CTC allows you to make multiple donations and claim them all at once. Any credits that you don’t use in a given year will carry over for up to five years. If you have any questions about how the AZ CTC works, be sure to consult with your professional tax advisor.