Originally Published: November 14, 2007 7:06 a.m.
PRESCOTT - Looking to save an extra $200 per year? Tax credits might be the answer.
Arizonans who want to reduce their tax liability and help others have two options - donate to a school or to a charitable organization, or both.
Tax credits are more than a tax deduction. Credits also reduce the taxpayers' tax liability.
United Way Yavapai County Executive Director Tammy Linn said the 'working poor tax credit' is different from the school tax credits.
All public schools, and some private schools, in Arizona qualify for tax credits.
Not all charitable organizations receive certification from the Arizona Department of Revenue as a qualifying charity for tax credit purposes.
Currently, Arizona law allows persons filing individually to receive a $200 tax credit for donations to schools or working poor agencies; and people filing jointly receive a $400 tax credit. Anyone making a school tax or working poor tax credit donation can double his or her benefit.
Linn suggests that anyone seeking a tax credit by making a direct contribution ask the agency for its certification letter. She also recommends people talk to a tax advisor about the tax-filing requirements.
To qualify for the school tax credit, taxpayers must make cash contributions, pay fees to a public school for extracurricular activities, or designate the money for character education programs.
WHO ELSE CAN I DONATE TO?
In short, Yavapai County has 45 working poor groups that you may donate to. School districts push that number to higher than 50.
Linn said people could donate to working poor agencies in two ways. She said people can donate directly to the agency, or donate to an umbrella agency such as United Way.
Linn said anyone donating to the United Way can "designate which certified agency they want their money to go, or let United Way officials decide where to send the money."
The director said people signing up for United Way payroll deductions could also designate their deduction go toward a working poor agency.
The Arizona Department of Revenue does not certify all charitable agencies to qualify for the working poor tax credit. The department's Web site lists 45 working poor agencies in Yavapai County.
Yavapai Exceptional Industries! is a direct contribution agency qualifying for the working poor tax credit.
Director Brad Newman said the working poor tax is a great program.
"YEI! received more than $14,000 in tax credit donations this past year. That money goes to support our employees. It helps pay the cost of equipment and training," Newman said.
The director said the tax credit helps YEI! "support our employees in developing employment skills."
Newman said anyone donating to YEI! directly should "take a tour, and see their gift in action. It is truly a gift to work."
He said that in supporting YEI! people are helping "people who were formally a tax burden that are now taxpayers.
SCHOOLS AND TAX CREDITS
Humboldt Unified School District Finance Director Cynthia Windham said the district's process for receiving donations is "pretty much standardized. It is not necessary to be a parent. Anyone can drop off a donation at any school, or mail their donation directly to the district office.
Windham said people should indicate where they want their donation to go-which school and which activity.
She said people must make their donations by Dec. 31. The district office is open during the holidays.
Windham said school tax credits help pay for extracurricular activities, including, athletics, clubs, field trips, or before and after school programs.
Windham said a person could make an "undesignated donation specifically to a school. The site council would then determine where to spend the money."
The Humboldt Unified School District consists of 10 schools that serve elementary through high school students.
Windham said the district received $147,000 in tax credit donations in 2006.
The 12 schools in the Prescott Unified School District received a total of $602,188 in 2006.
Superintendent Kevin Kapp said the district's middle and high schools also have a "pay to play" program that qualifies for a tax credit donation.
"People are so generous. Not a penny of the tax credit money goes toward administration," Kapp said.
According to figures provided by Prescott School District Finance Director Renee Raskin, in 2006 the district experienced a 12 percent increase in tax credit donations over the amount received in 2005, despite a 39 percent decrease in the number of donors.
Kapp attributes the increase in donation amount to the increase in the tax credit. The maximum tax credit for persons filing jointly increased from $300 to $400 per year.
"This is the epitome of a win/win situation for the taxpayer and the schools," Kapp said.
Anyone interested in more information about school tax credits should contact their local school district office.
A qualifying charitable agency is exempt from federal income tax under Section 501(c)(3) or is a designated community action agency that receives community service block grant program money. The charity must spend at least 50 percent of its budget on services to Arizona residents receiving Temporary Assistance for Needy Families (TANF) benefits or low-income households.
Linn said the services provided by qualifying agencies include cash assistance, medical care, childcare, food, clothing, shelter or other assistance to meet basic needs.
Low-income individuals are persons whose household income is less than 150 percent of the federal poverty level.
The federal poverty guidelines established an annual household income of $10,210 for a one-person family, and increases $3,480 per person in the household. The income level for a family of four is $20,650 and is $34,570 for an eight-member household.
ASK YOUR ACCOUNTANT
Some of the basic filing requirements include a taxpayer itemize their tax return. To receive the working poor tax credit, taxpayers must also have itemized charitable contributes in 1996, which by law is the baseline year.
This is where a tax advisor comes in handy. According to the the state, credit dollars are allows on the amounts above the baseline dollar amounts.
For example, if a taxpayer has a baseline amount of $500, the taxpayer must give $700 in total contributions that includes $200 to a qualifying charitable organization to receive a $200 tax credit.
A tax advisor would also know whether the working poor tax credit qualifies as a federal deduction.
To qualify for the school tax credit, taxpayers must make cash contributions or pay fees to a public school for support of extracurricular activities or for character education programs.
No such baseline or contribution history is required to receive the school tax credit.
It is not necessary to have a child in school to claim the school tax credit. However, fees a taxpayer pays for their own children to participate in an extracurricular activities or a character education program qualify for the tax credit. Contributions in support of extracurricular activities or character education also qualify for school tax credit.