The 2021 tax season is upon us and in full force! If you are expecting to receive a refund from the IRS, then you are probably looking forward to filling your taxes. If you are expecting to owe money, then like most, you are completely dreading the prospect of filing your taxes. No matter which side of the spectrum you may fall on, there is one thing we all have in common: we want to be able to apply as many tax credits as possible in order to give us the best possibility for a great tax return. Like most states, Arizona offers valuable tax credits to its residents.
Tax Credit Basics
As a taxpayer, it is important to know the tax credits you are eligible for in order to maximize your refund. A tax credit allows you to subtract the given amount from the amount of taxes you owe. For example, if you owe the IRS $500, but you have a tax credit of $200, then you would only owe a total of $300. It is important to note, tax credits are different from a tax deduction. Credits are a direct subtraction from your total balance owed to the state or IRS, whereas a tax deduction is an amount subtracted from your taxable annual income.
Tax credits are often associated with actions that are considered to be positive contributions to society. For example, having an electric vehicle, using or purchasing solar panels, educational expenses, and having qualified dependents are examples of common tax credits that reward and incentivize us taxpayers.
Depending on your state of residence and what type of taxes you are filing such as state or federal will determine which credits you may be eligible for. Both the IRS and the department of revenue website for your state has a vast amount of information regarding the credits that you may be eligible for. You can also work with a local accountant who can assist you in finding the most credits possible.
Arizona Tax Credits
As an Arizona resident, there are tax credits you may be eligible for as an individual and as a small business owner.
Business tax credits include:
- Quality Job Tax Credit: This credit applies to businesses that create a minimum number of job opportunities and meet minimum investment requirements within a year. This credit offers up to $9,000 over the course of three years.
- This credit is to incentivize businesses to make a positive impact in the community by extending job opportunities. It is important to note, in order to qualify for this business tax credit, you must apply and be approved by the Arizona Department of Revenue prior.
- Angel Investment Tax Program: Although this is not a direct tax credit for business owners, the program helps to assist small businesses be successful by offering tax credits and incentives for investors who make contributions to a small business. Having an investment in your business will not decrease your owed taxes at the end of the year, but it could allow you to bring in more profit and revenue thus increasing your businesses success.
- This program is managed by the Arizona Commerce Authority. Investors and small businesses must qualify per the ACA requirements and instructions.
Arizona also offers these beneficial tax credits to its residents:
- Contributions to QCOs (Qualifying Charitable Organizations) or School Tuition Organizations: This credit is available to taxpayers who made donations to QCOs or STOs throughout the year. To be a qualifying charity, the organization in question must meet the basic needs of individuals, assist low income families, or assist individuals with disabilities or severe health ailments. STOs are organizations that offer scholarships to students that attend private or catholic schools. For a full list of approved QCOs and STOs, you can view the Arizona Department of Revenue (ADOR) website. You can also receive a credit for both, donating to QCOs as well as STOs. Each of these contributions have a maximum credit you can apply towards your taxes. The amount varies based on your donation amount and your filing status.
- Renewable Energy Production: Individuals who own a qualified energy efficient generator and use it in accordance with the Arizona Department of Revenue (AZDOR) may be eligible for this credit. There are a limited amount of credits given throughout the year, so approval from the ADOR is required to obtain the credit on your taxes. Guidelines and the application process can be located here.
- University Research and Development: If you have made donations to any of the three major universities in Arizona (ASU, NAU, U of A) to promote research, then you may be eligible for the University Research and Development credit. This credit is also limited to a specific dollar amount. This means, once so many credits have been approved to taxpayers, AZDOR is unable to give any additional credits out. If you believe you qualify, you will need to get certifying documentation from the applicable university and apply for the credit through the department of revenue website.
- Public Schools Tax Credit: This credit is available for individuals who have made donations or paid fees to public schools. Qualified donations or fees to receive the tax credit include contributions to:
- School clubs or sports
- Testing materials
- Educational or tutoring programs
- CPR classes and certifications for faculty and staff
As taxpayers, we are always looking for ways to achieve the best possible refund. Knowing what tax credits you may be eligible for on your federal and state tax return can make all the difference in owing money or getting a refund. To review stipulations regarding tax credits, visit the Arizona Department of Revenue website. Having a better understanding of these credits will allow you to feel confident when filing your taxes and can turn the dreaded tax season into a happy surprise.