Arizona law change offers deductions for donations

Looking for a way to help out your favorite charity and perhaps get a break on next year's taxes?

A change in state laws allows income taxpayers to deduct certain donations to charities from state income taxes. According to Arizona Revised Statute 43-1088, individual income taxpayers who donated can claim up to $200 in credit on their state taxes and married couples filing jointly can claim up to $400.

There are some catches. The charity the taxpayer donates to has to be designated a federal 501(c) 3 organization or a community action agency that receives community development block grant funds. The organization must also spend at least 50 percent of its budget on services to state residents who receive temporary assistance for needy families or low-income residents, or provide services to families with ill or physically disabled children. A complete list of qualifying charitable organizations is on the Arizona Department of Revenue's Tax Credit website, www.azdor.gov.

A taxpayer cannot claim both the credit and a tax deduction on his Arizona income taxes for the same donation.

The services can include providing cash assistance, medical care, childcare, food, clothing, shelter, job placement or training and more.

Taxpayers can also claim the credit for donations to umbrella organizations such as the United Way, as long as they designate that the funds be used to help an organization that provide temporary assistance to families, low-income residents or families with ill or physically disabled children.

In order to claim the state credit, the taxpayer has to file an itemized state income tax form and provide the name of the organization and the amount of the donation. The approved amount of the credit will be used to offset the amount of tax owed to the state. If the taxpayer doesn't owe anything to the state or the amount of the credit exceeds the amount owed, the remainder of the credit will be rolled over onto the next year's taxes. A taxpayer can keep rolling over the amount for up to five years.

A form to claim the credit is also listed on the Department of Revenue's website. A certified tax accountant can also help with filing the proper paperwork.

The federal government also allows taxpayers making donations to various non-profit organizations to claim a deduction in their federal taxes.

Some examples of donations that qualify for the deduction are those made to religious organizations such as churches, local government entities to help fund public services, non-profit schools and hospitals, non-profit educational organizations such as the Boys and Girls Club, war veterans groups, expenses for students living with and sponsored by a qualified organization - such as foreign exchange students, donations to utility company emergency help programs, public parks and recreation groups and out of pocket expenses incurred while volunteering for a qualified organization.

Some examples of donations that cannot be deducted from federal taxes include donations to specific individuals, political organizations or candidates, labor unions, chambers of commerce, certain civic groups, certain foreign organizations, groups that are run for personal profit, lobby groups, homeowners associations, the cost of raffle or lottery tickets, dues paid to certain clubs, tuition, the value of your time or the value of your blood to a blood bank.

There are number of rules governing these federal deductions. For example, you pay $65 for a ticket to a charitable event and the market price of the ticket is $25. You can claim a $40 deduction for the ticket.

In order to claim the deduction you must file an itemized tax return and maintain a record of the donation. The best way to see if a charity you have donated to meets the federal requirements is to use the Internal Revenue Services, "Search for Charities" feature online at www.irs.gov. Click on Charities and Non-profits and then on search for charities on the right-hand side of the screen.

Or take the information to a qualified tax accountant.