Friday, October 20, 2017

Arizona Tax Credit Series - 2017 Edition

Common AZ Tax Credits updated for 2017 Limits

At our office, I often get asked about the Arizona tax credits, the donation amounts, who to donate to and have to clear up some misinformation about coordination of the credits.  So each year I undertake to write up about the popular AZ tax credits and inform about the changes and increases to those credits.

For starters, these credits qualify the contributor to a dollar for dollar credit against the AZ state income tax (these credits may qualify for a Federal charity deduction, which may result in a tax savings of anywhere from 15% - 39.6% of the donation amounts).  A tax credit is a great tax savings because of that dollar for dollar application, but only if you have income subject to tax in the state of AZ. (Sorry to our neighbors in California or New Mexico)

The credits that I usually point clients to are the following (Credit Title and maximum donation amount for single/married taxpayers):

  • Arizona Military Family Relief Fund ($200/$400)
  • Contributions to Qualifying Charitable Organizations ($400/$800) formerly known as the Working Poor Credit
  • Contributions to Qualifying Foster Care Organizations ($500/$1,000)
  • Contributions Made or Fees Paid to Public School ($200/$400)
  • Contributions to School Tuition Organization ($1,089/$2,177)
The Arizona Military Family Relief Fund, if interested in making that donation, is approaching their cap in donations.  This credit is only allowed to receive up to $1,000,000 in donations each year and must return any excess donations received after reaching that cap, as of 10/19/2017 the fund had received $819,086 in donations.  To make the donation, send a check with the donation form (located here: MFRF 2017 Donation Form.


The other credits I will provide information about in separate blog posting a little later.  

Please consult with a tax advisor (or our office) to see if these tax credits would be beneficial to you and be careful not to do too much in tax credits as these are not refundable (the refund generated from these credits is because of tax withholding or estimated tax payments that have now been offset by these credit donations).

Monday, July 17, 2017

How do I pay my taxes?

So you have prepared your taxes and determined that you have a balance due, what do you do next? A question that we receive a lot in the office is: How can I make the payment for the balance due on my income taxes?  What are the options if I can't make a full payment?



The first recommendation when you have a balance due, to either the IRS or a state agency, is to pay that balance by the due date or as soon as possible after that to either avoid or reduce late payment penalty and interest on the balance. 

What are available payment options for paying in full?

You can pay by remitting a check or money order payable to the United States Treasury for balances due on your Federal taxes or a check payable to the state taxing authority (for AZ that would be Arizona Department of Revenue).  As I joke with some of our clients, paying via check is starting to go the way of the dodo bird, not very common anymore.  

Another alternative is to have the amount debited from your account.  This can be done at the time of filing, if requested when electronically filing the tax return.  Other options to pay via debit include setting up a debit via IRS' Direct Pay or for AZ it can be done at AZtaxes.gov Make A Payment.  After entering information about the payment request, you will be prompted to enter the bank information and schedule the payment date.  If you pay via bank debit through these websites, there is no additional charge by the taxing authority.

You can also pay via Debit or Credit card, plus a fee that is added to the balance to be paid.  To initiate the payment to the IRS, you can go to IRS webpage Pay by credit or debit card.  You can then select the card processor on that webpage.  These same processors accept payments for other tax agencies (state income tax, county real estate taxes, etc.).  The fees have come down in the last year or two but it will cost an extra almost 2% to pay via credit card.  A debit card has a flat fee that is around $3 to process the payment.

If you can't pay the entire balance at one time, there are installment payment options available.  The IRS has an online payment agreement request here: Online Payment Agreement Request or you cna file a request via mail on Form 9465.  If the balance due is below certain limits (for individuals this amount is $10,000), it is almost assured that you will be approved for the payment agreement.  For larger amounts, there may be other documentation, requirements or information to be provided to demonstrate the financial need for the payment plan.  For example, the IRS may require direct debit of the payment amount, require detailed financial information with the installment agreement on Form 433-D, and in some instances the IRS may require that a lien be put in place to secure the interests of the United States.

As with all things, each situation can be unique so please contact the office to discuss how your situation may need to be dealt with.

Did you find this information helpful?  Please leave a comment if you have more questions or need something clarified.

Friday, July 7, 2017

Capital Assets, Investment Losses & Tax Treatment

Right off the bat, let me clarify that this will not be an exhaustive discussion of the topic of the tax treatment of investments in general as there are countless books, websites, radio programs, college classes and other educational opportunities devoted to the vast depth of that topic.  Instead I want to limit this to touching on the topic of capital assets and in particular the tax treatment of capital losses.

You may be asking what is a capital asset?  Almost everything you own is a capital asset as defined by the Internal Revenue Service (see here for more info), that is used for personal or investment purposes. Examples of capital assets include your personal auto, your house, a second home, stocks, bonds, mutual funds.  

Determining the type of asset is important, as there may be tax benefits for selling investment assets at a loss.  Personal items that are sold at a loss do not provide a tax benefit as there was no motive to make money or a profit on the purchase, for example your personal automobile (unlike collectors that sell cars at the Barrett Jackson's auction).

Now we have defined capital asset and let's assume that you sell that asset (stock, mutual fund, real estate), how do you determine if it was a gain or a loss on the sale?  To determine, you must determine your cost basis in the asset, this will generally be the price paid to acquire the item (plus any allowed carrying costs or other expenses that get added as basis).  You subtract that cost basis from the sale price, deduct any expenses for selling the item (commissions, for example) and the net result is either your gain or loss.

If you calculate the result and have a loss, what next?  For tax purposes, you can deduct a capital loss on your tax return up to certain limits, losses are first offset by any capital gains and then any excess is limited to $3,000 per year.  That $3,000 loss can offset any other type of income, so that is nice but what happens if you have a loss of $100,000?  The loss can be taken until used up, subject to the limits just explained (to offset other capital gains and then up to $3,000 per year).  The time expiration to these carryovers is that when you pass away, the losses are die with you.

I had a discussion recently with a colleague/client about his excessive loss carryover (he has enough losses to last a few hundred years) about strategies to use up those losses.  His potential solution was to invest in a mutual fund that has large capital gains distributions, except mutual funds treat short term capital gains as ordinary income (dividends) and not as capital gains.  So in this case, the $3,000 per year limit would still be applicable.  My suggestion was an investment partnership that would report short term and long term capital gains in a way that would allow for the offset against capital loss carryovers.  I am hoping that he can find a investment that would allow for this treatment.

Do you have tax questions about investment income?  Please shoot me any questions or comments.


Wednesday, September 21, 2016

Common Arizona Tax Credits Update for 2016

Arizona Tax Credits for 2016


This week I had a client ask if I had updated the list of Arizona Tax Credits for 2016.  She had checked the blog that I post and didn't see the full listing so gave me a great reminder to sit down and list out the available credits.

There are many credits available to Arizona taxpayers, this blog will focus on the donation related credits and not as much on the multitude of miscellaneous credits for things such as solar energy/lighting, research and development, etc.

The credits I want to highlight are: 1) Public School Fees paid or donation, 2) School Tuition Organizations, 3) Charitable Organizations, 4) Qualifying Foster Care Organization, and 5) Arizona Military Family Relief Fund.  These credits are allowed to be used together but are limited in the separate category by donation amounts.  These credits can be used up to your tax liability to the state of Arizona and some of the credits allow excess amounts to be carried over up to 5 years.

1 - Public School Tax Credit

The amount that is eligible is $200 for single taxpayers (or head of household), $400 for married filing joint taxpayers.  The payment must be in cash/check/credit card and can not be done by in-kind donations (purchased items donated to the school).  The payment also must be to an Arizona K-12 school (public or charter school) and is able to be made up to April 15th following the year it is to be claimed as a credit.

It does not have to be just a donation, the payment may be for fees paid to the school.  According to the Arizona School Tax Credit Publication 707:
"What are qualified activities or qualified programs for the purpose of the public school credit? 

For the purpose of the public school credit, qualified activities and qualified programs include any of the following: 
Extracurricular activities 
Character education programs
Standardized testing fees for college credit or readiness offered by a widely recognized and accepted educational testing organization
Preparation courses and materials for standardized testing
The career and technical education industry education industry certification assessment "
Extracurricular activities include athletics, band, choir and other similar participation fees.  It may also include field trip or class trip amounts, if paid to the school.  The standardized testing fees and costs must be paid to the school to be eligible.

2 - Private School Tuition Organizations

This credit is for organizations that provide scholarships to private school students, in grades K-12.

This credit is adjusted for inflation each year and technically is comprised of 2 components.  The 2016 credit amounts that can be contributed are up to $1,087 for single taxpayers, $2,173 for married filing joint.  The AZ Department of Revenue provides a listing of the eligible organizations, here is a link to that document: STO List - AZ DOR.

3 - Charitable Tax Credit

This credit was previously known as the Working Poor Tax credit.  This credit is available for donations made to qualifying charitable organizations.  The contribution amounts have significantly increased for 2016, $400 for single taxpayers and $800 for married taxpayers (this is double the amount previously allowed for this credit).

The AZ Department of Revenue provides a listing of the eligible organizations, here is a link to that document: Charitable Organizations

4 - Qualifying Foster Care Organization Credit

This credit is the newest credit that was implemented in just the last couple of years.  There was a major change to this credit for 2016 - the allowed amounts increased to $500 for single taxpayers and $1,000 for married taxpayers plus this credit used to be combined/connected with the Charitable Tax Credit but for 2016 it will be a stand alone credit not dependent on the other credit.

The AZ Department of Revenue provides a listing of the eligible organizations, here is a link to that document: Qualifying Foster Care Organizations

5 - Arizona Military Family Relief Fund Credit

This credit provides grants and assistance to military family and members that are struggling financially.  The credit has a cap on the total donations that it can receive, once $1,000,000 has been received the funds have to be returned by law.  So make sure you make your contribution early enough to have it qualify.  The amount that can be contributed is $200 for single taxpayers and $400 for married taxpayers.

There is a form to submit with your check that can be obtained here: MFRF 2016 Donation Form

Summary
In summary, you can do all of the above credits up to the amount for your tax filing status or a combination of any of the credits. The above listed credits are available to offset Arizona tax liability up to the amount of the tax liability but these credits will not by themselves create a refund. The credits combined with withholding or estimated tax payments may result in a refund of the overpayment of the withholding or estimated taxes.  

If you are unsure if these would benefit you specifically, I recommend that you contact a tax professional that can answer that question for you.  Our office uses these credits as part of year-end tax planning for clients.  If you want to support specific, qualified organizations then utilize these credits to direct your tax dollars.

Saturday, September 17, 2016

AZ IRS Offices Will Stop Accepting Walk In Appointments

The below information was summarized and provided via a member of a professional organization that I belong from the IRS Stakeholder Liaison:

Here is an email from the IRS:
There are only 8 employees available to assist taxpayers. The walk in office averages 200 people per day.  They will be turning people away at 3:45 p.m. because they cannot stay past 4:30 p.m. each day.  

They are setting up appointments but will assist walk ins in between the appointments until October 12, 2016.  At that point they are only seeing people with appointments.

Taxpayers can still walk in and make payments.

Accounts Management employees will be answering the phones and setting up appointments.  If they can help the taxpayer on the phone they are supposed to.  The walk in manager says this is not always happening and they are working on this. 

Also the person making the appointments is supposed to let the taxpayer know what they should bring in to their appointment.  This is still a work in progress.

The walk in office will not assist practitioners.  The practitioners have their own telephone number to call and should be using it.

IRS is pushing online assistance with all taxpayers.  Most items and assistance can be secured online and that is where the IRS is moving towards.

ITIN issues are only worked on Tuesdays and Thursdays so taxpayers will need to make appointments for those days if they have an ITIN issue.

The Mesa and Glendale offices will be going to appointments on November 12, 2016, they will continue to see walk ins until December 12, 2016, when they go to full appointment only.


The TAC (walk in) offices are working with the Social Security Administration to have offices in the SSA offices nationwide.  This is planned for Fiscal year 2017.

Monday, August 22, 2016

Arizona Tax Credits - Military Family Relief Fund

Last time I provided information about the public school tax credit allowed for Arizona taxpayers.  I am continuing the series on AZ tax credits this time providing information about contributions to the Arizona Military Family Relief Fund.

This credit is established to provide support to families of currently deployed military service members and post-9/11 veterans and their families.  I have read some of the grants provided include providing assistance for families to travel to visit hospitalized service members when the military was unable to provide travel for the entire family.

This credit is capped to $1,000,000 in donations per year, when the organization receive donations that total that amount they are prohibited from keeping the funds.  I generally recommend that taxpayers make this donation around or before Thanksgiving as that tends to be before the annual cap is reached.

Like the other AZ state tax credits, this qualifies for a dollar for dollar reduction in taxes.  It may also qualify as a charitable contribution for Federal itemized deductions.  This can also be used in conjunction with the other credits up to the liability you have for AZ taxes during the year of the donation.


  • To read more information about this credit and the department responsible for collecting donations and providing assistance, click here: DVS 2016 Military Family Relief Fund
  • To download the donation form to accompany your check or money order, visit the website here: MFRF 2016 Donation Form
In the coming weeks I will provide more information on other AZ tax credits and changes for 2016.


Friday, July 8, 2016

Arizona Tax Credits - Public Schools


Summer vacations are underway but with the 4th of July just passed, most parents and teachers know that means it is close to time to return to school.  For high school students, this means the start of football season, marching band and other extracurricular activities.  For parents of high schoolers, this means money will be spent in athletics fees, participation fees, etc.  It may also mean money to be spent for other expenses such as ACT or SAT tests.

I know very few people that enjoy spending money, but did you know that money paid to K-12 schools in Arizona may be eligible for an income tax credit?

From the Arizona School Tax Credit Publication 707:
"What are qualified activities or qualified programs for the purpose of the public school credit? 

For the purpose of the public school credit, qualified activities and qualified programs include any of the following: 
  • Extracurricular activities 
  • Character education programs
  • Standardized testing fees for college credit or readiness offered by a widely recognized and accepted educational testing organization
  • Preparation courses and materials for standardized testing
  • The career and technical education industry education industry certification assessment "
Extracurricular activities include athletics, band, choir and other similar participation fees.  It may also include field trip or class trip amounts, if paid to the school.  The standardized testing fees and costs must be paid to the school to be eligible.

The amount that is eligible is $200 for single taxpayers (or head of household), $400 for married filing joint taxpayers.  The payment must be in cash/check/credit card and can not be done by in-kind donations (purchased items donated to the school).

The credit is available to reduce your AZ tax liability dollar for dollar up to the amount contributed or the limit for the filing status ($200/$400).  This credit can be used in conjunction with the other Arizona tax credits (Charitable Tax Credit, Foster Care Organizations Credit, Private School Tuition Credit, and Military Family Relief Fund) up to the amount of each of those credit limits (which I will discuss later on another blog post).

Please be sure to check with your advisor to see is this may be of benefit in your particular situation. Look for my additional discussion on the available tax credits to be coming up.