#17 | Arizona Tax Credits

For our listeners in Arizona, the state offers four great ways to receive tax credits on your state return. This is a tax credit, not a tax deduction, and Bruce starts today’s episode by explaining the significant difference between the two.  We then break down each of the four possible credits:

  1. Private School Arizona Tax Credit
  2. Public School Arizona Tax Credit
  3. Qualified Charitable Organizations
  4. The Qualified Foster Care Organization Tax Credit

The key takeaway here is that by utilizing each of these credits, you have a large amount of control over where our state tax money goes, as opposed to politicians fighting over their special interests.

For more information about anything related to your finances, contact Bruce Hosler and the team at Hosler Wealth Management.

Call the Prescott office at (928) 778-7666 or our Scottsdale office at (480) 994-7342.

To listen to more Protecting & Preserving Wealth podcast episodes, click here.

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Podcast Host

Bruce Hosler Image

Bruce Hosler is the founder and principal of Hosler Wealth Management, LLC., which has offices in Prescott and Scottsdale, Arizona. As an Enrolled Agent, CERTIFIED FINANCIAL PLANNER™ professional, and Certified Private Wealth Advisor (CPWA®), Bruce brings a multifaceted approach to advanced financial and tax planning. He is recognized as a prominent financial professional with over 27 years of experience and a seven-time consecutive *Forbes Best-In-State Wealth Advisor in Arizona. Bruce recently authored the book MOVING TO TAX-FREE™ Strategies For Creating Tax-Free Retirement Income And Tax-Free Lifetime Legacy Income For Your Children. www.movingtotaxfree.com.

In the Protecting & Preserving Wealth podcast, Bruce and his guests discuss current financial topics and provide timely answers for our listeners.
If you have a topic of interest, please let us know by emailing info@hoslerwm.com. We welcome your suggestions.

*2018-2024 Forbes Best In State Wealth Advisors, created by SHOOK Research. Presented in April 2024 based on data gathered from June 2022 to June 2023. 23,876 were considered, 8,507 advisors were recognized. Not indicative of advisor’s future performance. Your experience may vary. For more information, please visit.

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Jon “Jag” Gay: Welcome to episode number 17 of Protecting and Preserving Wealth. I am Jon Jag Gay, joined as always by my co-host Bruce Hosler of Hosler Wealth Management. Good to be with you Bruce.

Bruce Hosler: Jon. It’s great to be with you.

Jon: Bruce. I see we’re talking about Arizona tax credits today. I’ve heard of tax credits, but let me ask you kind of a basic question before we get started here.

What is the difference between a tax credit and a tax deduction?

Bruce: Jon, I would venture that most people do not really understand the difference between a tax deduction and a tax credit. A tax deduction allows you to deduct and expense, and the expanse will save you the amount of taxes that is equal to your effective tax rate.

So, as an example, if your effective tax rate is 20% and you have a $100 expense that qualifies as a tax deduction, you will save $20.

Jon: Okay. I think everybody enjoys a good tax deduction. So, if I pay for a tax deductible expense, I can expect to save a portion of the amount I paid equivalent to my effective tax rate. Do I have that right?

Bruce: That’s right. Most people enjoy tax credits even more though. Because a tax credit saves you tax dollars, dollar for dollar on the amount of the tax credit. Let me give you an example.

Jon: Mm-hmm.

Bruce: If I make a $100 donation to my church that qualifies for a tax deduction and my tax rate is 25%, I save $25 on my federal income taxes for that year.

However, if I make a $100 donation to a charity that qualifies for the Arizona tax credit, then I can save $100 off of my Arizona taxes.

Jon: All right, so if I’m following you here, Bruce, you’re saying that a tax credit is 100% offsetting the taxes due for that amount against Arizona tax liability in this case?

Bruce: That’s exactly what I’m saying. Tax credits are way better than deductions.

Jon: So, it seems to me then if I think about tax deductions, that people that are in a higher tax bracket receive a bigger deduction for the amount they paid into, such as the tax deduction. People who are in a lower tax bracket will say 10, 15%, they don’t receive as high a tax deduction.

Do I have that right?

Bruce: You’re exactly catching on quickly. These people who are in a higher tax bracket receive higher tax deductions because their tax rates higher. Therefore, the benefit on the deduction is higher. But that’s, generally for tax deductions on your federal taxes.

Jon: Okay, and I’m, I’m following this through here, no matter what tax bracket you’re in, a tax credit will benefit donors the same exact amount, the full amount of the donation. So it benefits the lower income taxpayers, just the same as the higher income taxpayers.

Bruce: It provides the exact same benefit to all taxpayers, 100% of your tax credit.

Jon: All right, so let’s zoom into Arizona specifically. The Arizona tax credits only apply to Arizona’s state income taxes, correct?

Bruce: Correct. So, there are only a certain number of tax credits that are available to all Arizona taxpayers that help them offset their state income tax liability, dollar for dollar.

Jon: All right, Bruce, let’s share four of the Arizona tax credits with our listeners, so they can take advantage of these tax credits if they choose to.

This is the time of the year to look at it, right?

Bruce: Yes, it is. Let’s start with private school Arizona tax credits. So, a married couple filing jointly can contribute as much as $2,483 and receive a tax credit dollar for dollar. If you’re single, you can donate up to $1,243 to a private school donation.

Jon: So if I have family members that are charitably inclined and they give to many different charities each year, um, what about the folks that can keep giving to some of the same charities? Many of them could benefit from using a strategic tax credit plan, correct?

Bruce: Yes, and the Arizona Public School tax credit, this is a credit not as large as the private school tax credit, but with this credit, our listeners can donate to the Arizona school, and only with this credit are you allowed to specify the program at the school that you want to donate support for?

Jon: Okay.

Bruce: So, for example, my girls, when they were in high school were in show choir. My boys wrestled and competed on the swim team. We were able to donate money to the schools to support those extracurricular programs. and they received every tax credit dollar that we paid to support the program.

Jon: Oh, I love that. A parent can donate money to the school their child attends for the extracurricular program their child’s participating in and receive an Arizona state tax credit, dollar for dollar. Every dollar they pay in?

Bruce: That’s right. Right up to the limit for that category.

Jon: Okay, there is the rub, the limit is $400, right?

Bruce: Yes, that’s right too.

Jon: So, what other tax credit programs are we looking at today, Bruce?

Bruce: Today, we’re also looking at the qualified charitable organizations, and these are very popular and primarily they help low income children, individuals, and families. And you can donate up to $800 for a married couple; and singles can donate up to $400 and receive the tax credit.

Jon: I like that one a lot. How many charities qualified to receive these types of donations?

Bruce: It’s amazing, literally hundreds. Think about it, most charities are formed to help someone in need.

Jon: All right, so we said four off the top. That’s three, what is the fourth Arizona tax credit program we haven’t covered yet?

Bruce: So, we’re gonna talk about the qualified foster care organization tax credit. There is approximately 14,000 children in foster care programs in Arizona.

Jon: Wow.

Bruce: These charities provide a wide variety of services like clothing, shelter, furniture, things like that to support these kids.

Jon: All right. How much can be donated for this tax credit?

Bruce: So, if you’re married, finally joined as a couple, you can donate up to a thousand dollars and receive the tax credit for every dollar single people can donate up to $500.

Jon: All right, so why is Arizona specifically providing all these different types of tax credits, Bruce?

Bruce: Well think about it, Jon. The State is allowing Arizona citizens to control where their tax dollars are being allocated. Here’s some math to consider. If you’re a married couple and you have a taxable state income of a hundred thousand dollars, and let’s say your tax rate is 4.5 percent, if you donate to all four areas of the tax credit programs that we’ve discussed here today, you’re gonna max out at about $4,683.

So think of it. That’s equal to your entire state tax liability. So, essentially you can control where all of your Arizona state tax dollars are being spent. It’s very cool. It’s a very popular program with our clients.

Jon: I love that idea, Bruce. Without getting, you know, political here, you know, you, you think about what the state does or what the Fed does and you think about what they do and you say, I can’t believe they’re using my tax dollars for X, Y, Z depending on whatever your belief system is.

This lets you essentially control, uh, what the state, at least in this case is doing with your state income tax dollars. That is really, really cool. Any downside to these tax credit?

Bruce: No, there’s not any that I can think of, Jon, unless you want the state to just waste your dollars on some stupid program that you don’t agree with.

that a special interest group has persuaded the politicians to impose in order to stay in office. I love how these tax credits can be used. and we can help the most needy among us.

Jon: I think you took what I said, but said it a little bit more eloquently. .

Bruce: I don’t think so.

Jon: These Arizona tax credits do seem like a really nice way to be able to do good and still get a state tax credit again, dollar for dollar as we talked about off the top at the same time.

Uh, Bruce, if one of our listeners has more questions about Arizona state tax credits, how do they get in touch with you?

Bruce: Jon, they can reach us on the website at https://hoslerwm.com. Hoslerwm.com. They can call us in Scottsdale at (480) 994-7342, or in Prescott (928) 778-7666. Thanks, Jon. This has been a great topic today.

Jon: And I’m starting to understand why a lot of folks I know have moved to Arizona. Thanks, Bruce. We’ll talk soon.

Bruce: All right, thanks Jon.

Jon: Securities and advisory services offered the Commonwealth Financial Network® member FINRA/SIPC, a registered investment advisor. Forward-looking commentary should not be misconstrued as investment or financial advice. The advisor associated with this podcast is not monitored for comments and any comments should be given directly to the office at the contact information specified.

Any tax advice contained in this communication, including any attachments, is not intended or written to be used and cannot be used for the purpose of 1) avoiding federal or state tax penalties, or 2) promoting marketing or recommending to another party, any transaction or matter address herein. The accuracy, completeness, and timeliness of the information contained in this podcast cannot be guaranteed.

Accordingly, Hosler Wealth Management LLC does not warranty guarantee or make any representations or assume any liability with regard to financial results based on the use of the information in this podcast.

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