I hope that you and your family have a wonderful Christmas holiday! Before the end of the year, there are two charitable giving opportunities that I wanted to bring to your attention from a tax perspective. First, if you have an IRA and you are interested in giving some of the IRA to charity this year, you can make the distribution directly to your favorite charity (the “IRA charitable rollover”) without paying any income tax. Second, in Arizona, there are at least 3 great tax credits available for contributions made to public schools (the “public school tax credit”), for contributions made to school tuition organizations for scholarships to private schools (the “private school tax credit”), and for contributions made to charitable organizations to support the working poor (the “working poor tax credit”). However, the deadline for most of these opportunities is December 31st.
If you are age 70 ½ or older, you may make a tax-free distribution from your IRA for charitable purposes as long as the transfer is made by December 31, 2016. In general, donors age 70 ½ and older may transfer up to $100,000 from their IRA to the charity of their choice (provided that the donated amount is transferred by the IRA trustee directly to the charity), and this distribution is not subject to federal income tax. Although the taxpayer may not claim a charitable deduction for the amount donated, such amount will be excluded from the taxpayer’s gross income and will also be counted towards any required minimum distributions for 2016. However, it is extremely important not to withdraw funds from your IRA prior to making this gift. Instead, talk to a representative from the charity about the proper forms to complete in order to make the gift tax free. However, don’t delay. The deadline is December 31st.
An individual may claim a tax credit for making contributions to a public school located in Arizona for the support of extracurricular activities or the character education programs. The credit is equal to the amount of the contribution, but it cannot exceed $400 for married filing joint filers and $200 for all other filers. Taxpayers claiming this credit will use a Form 322 with their Arizona tax return.
An individual may also claim a tax credit for making a donation to a private school tuition organization for scholarships to private schools. The maximum credit amount that may be taken under this credit in 2016 is $545 for single, unmarried head of household and married filing separate filers and $1,090 for married filing joint filers. The tax credit for contributions made to private school tuition organizations is claimed on the Form 323. In addition, in certain circumstances, an individual may also claim an additional tax credit for contributions for private school scholarships using Form 348.
Finally, the working class poor credit is also available to individuals. This tax credit is equal to the contribution made to a qualified charitable organization up to $400 for a single or head of household taxpayer and up to $800 for married filing joint return taxpayers. Taxpayers claiming this credit will do so on a Form 321.
All of these forms are filed with your Arizona tax return for this year. Moreover, all of these tax credits are also deductible on your federal income tax return for this year. However, to get the most “bang” for your tax-dollar buck, it is best to make your donation by December 31, 2016.
Our firm has helped hundreds of families just like yours handle a wide variety of estate planning, business planning, probate, trust, and elder law issues. When families or business owners are not getting along, we can also handle any disputes and litigation related to their businesses, wills, trusts, guardianships, or conservatorships. Please give me a call, so that I can help you work through these difficult issues with confidence.