Tax Credit vs. Deduction: What’s the Difference?

community service opportunity

Philanthropists like you often claim their donations as either deductions or tax credits, getting back a reward for their giving nature. It is essential to understand the differences between deductions and tax credits. Doing so will make it simpler for you to handle the challenges of this process and get the most reward for your donations.

What are Deductions?

Tax deductions are the most common way to cut back on your taxes and include various write-offs that you can use to minimize how much you owe. However, your deductions are not calculated using a 1-for-1 rate. That is to say, if your deductions are $12,000 or so, there are several formulas used to figure out how much this cuts out of your taxes – certainly not the total amount.

The different calculations used to figure out this amount are too complex to discuss in-depth in this article. However, they include various concepts created by the IRS and state tax officials to balance how much you owe with what you have spent. The idea is to create a fair understanding of how much these deductions impacted your taxes and give tax officials an excellent chance to collect decent money.

How Do Tax Credits Differ?

Tax credits are similar to deductions, as the “Working Poor Tax Credit,” an option that dates to 1998 and is now called the Qualifying Charitable Organizations tax credit. Like deductions, these credits are used to reduce the amount of money that you owe. However, tax credits usually reward people with a community service opportunity to give money to groups that qualify.

When deducted from your taxes, these credits are calculated on a 1-for-1 basis. So if you gave $2,500 in tax credits to a qualifying organization, you would get that much money off of your payment. However, this option is usually limited to pretty specific organizations, which are often changed and updated throughout various tax years to create the most accurate understanding of this process possible.

Getting the Most Out of Your Donations

If you want to give to various groups and would like benefits, tax credits are probably the best option. That said, deductions are also a good choice for the philanthropic. Of course, few true humanists give money just to get cashback on their taxes. However, your giving nature deserves a reward, and deductions and tax credits help make this process more rewarding.

To learn more about this topic, as well as how your donations help those suffering from hunger, poverty, and homelessness, call Paz de Cristo today. We’ll do everything we can to make it easier for you to help feed, clothe, and empower.

How Your Tax Credits Feed, Clothe, and Empower

food boxes

Everyone falls on hard times now and then, and it is our duty, as good citizens in the world, to help our brothers and sisters in their time of the greatest need. At Paz de Cristo, we help people who are struggling and who are in need of a helping hand. Most of those we provide service to deal with hunger, poverty, and homelessness. Our attention remains local, and we focus primarily on the Phoenix East Valley and immediate surrounding areas. The need is great, greater than many people realize. For example, did you know that nearly 30% of our neighbors live on a paycheck that barely covers rent and the necessities of life? Even the smallest gesture like a few dollars or food boxes or a place to stay for a few nights can make a world of difference in the life of someone who has lost almost everything.

A Passion for Helping

That is why we here at Paz de Cristo are committed to helping those less fortunate find the help and comfort and encouragement they need to get back on their feet and get their lives back on track. It all starts with compassion, support, love, food, shelter, clothes, and hope. Once the basic physical needs are met we can begin to tend to the mental and spiritual and emotional needs of those who come to use for help. We give people more than just a handout, we give them a hand up so that they can get back on their feet.

What We Do

Thousands of meals are prepared and served through Paz de Cristo, and it is all done through the help of our volunteers and generous donations from members of the community. Clean clothes, showers, haircuts and shaves are the first step to helping our guests feel better and helps give them a fresh start and helps them feel better about themselves and their future. At Paz de Cristo we also help people overcome obstacles in their path, so they can break the vicious cycle of homelessness and poverty and find work and become self-sufficient once again. Food boxes, basic living needs, and more can easily be provided so long as we continue to have the support of our community.

Those Who Make It All Possible

At Paz de Cristo, we rely on the help and support of donations and volunteers. Form working at our facility and assisting with our guests to helping to fund the work we do here in the community, we cannot do it alone. If you are looking for a way to help us make a bigger impact and touch more lives in the Phoenix East Valley area, consider taking advantage of the Arizona Charitable Tax Credit this year. Make a donation to our organization and enjoy the benefits of a tax break while also knowing you are making a difference in the lives of others right in your own community. Contact us today if you have any questions about what we do or how the Charitable Tax Credit works.

How to Identify a Qualifying Tax Deductible Charity for Your Donation

tax deductible charity

Eligible Arizona Tax Deductible Charities

Not every donation to a non-profit organization qualifies for a tax credit. The charities need to meet certain requirements set out by The State of Arizona and the federal government for your donation to count as a tax-deductible charity. The Arizona Department of Revenue publishes a list of all Qualifying Charitable Organizations and Qualifying Foster Charitable Organizations each year that you can contribute to.

The ADOR periodically recertifies the charities to ensure that they continue to meet the required legal requirements. Effective 2018, the Arizona Department of Revenue assigned five-digit code numbers to identify QCOs and QFCOs for tax credit purposes. Taxpayers have to use the “QFCO code” or “QCO code” in their Form 352 and 321, respectively, to claim their tax credit.

Eligibility for a Qualifying Charitable Organization

For an organization to qualify as a tax deductible charity, it must complete the QCO form and submit it to the ADOR alongside supporting documents. The non-profit needs to provide immediate basic needs to Arizonians. These include those that receive temporary assistance for needy family (TANF) benefits, low-income residents, or children with chronic illness or disability. The tax deductible charity also must spend at least 50% of its annual budget on “qualified services to qualified Arizonian residents.”

According to the Arizona Department of Revenue, qualifying services include cash assistance, shelter, food boxes, job placements, medical care, job training opportunities, or any other assistance that meets basic needs provided and used in the State. Low-income residents have a household income that is less than 150% of the federal poverty level. The State also indicates that chronically ill or physically disable individuals have a severe physical condition that requires ongoing medication or surgical intervention.

You can claim the tax credits on Form 321 for a maximum of $400 for single filers and $800 for married joint filers.

Eligibility for a Qualifying Foster Care Organization

A QFCO that qualifies as a tax deductible charity needs to meet the requirements of a QCOs. Additionally, the organization needs to spend at least 50% of its budget on ongoing services for at least 200 children placed in foster homes or on child welfare agencies. The State indicates that qualified individuals are foster children or people under 21 participating in a transitional independent living program.

You can claim your tax credit to QFCO on Form 352 for a maximum of $500 for single filers and $1000 for married joint filers.

Help Arizonians in Need at No Cost to You

Donations to a tax deductible charity can earn you tax credits on your State taxes and federal deductions. Paz de Cristo is a certified QCO in which 93 cents of every dollar donated goes to feed, clothe and empower. Your donation can make a difference in our community.

What You Need to Know About Tax Deductible Donations

tax deductible charities

Statistics indicate that three out of 10 of our neighbors survive on an income that barely covers rent and necessities. You can make a difference in people’s lives by donating to qualifying tax-deductible charities. Here are the top five things you need to know.

Arizona Tax Deductible Donations

Arizona Tax Credit provides dollar-for-dollar for charitable donations. Formerly known as Working Poor Tax Credit, it has a limit of $400 for individuals and heads of households. Married couples contributing to qualifying tax deductible charities can get a credit of $800.

You can make small contributions throughout the year to a food box or working poor charities. The sum of those contributions will be deducted at the end of the financial year as long as it is within the limits.

What Qualifies As a Donation?

There are several misconceptions about donations and tax credits. Many people tend to overlook that not all organizations that contribute to charity qualify as tax deductible charities. Nonprofits must register under section 501(c)(3).

It is also worth noting that not every nonprofit can qualify for either state or tax credit federal deductions. Organizations in sports and civic and social welfare are under the nonprofit section, but they are not eligible.

Charitable Gifts That Do Not Qualify

There are also certain types of gifts that do not qualify under charitable donations despite misconception. For example, if you were to organize fundraising for a friend, you will not be eligible for deductibles. It must be an organization registered as a nonprofit or one working under an umbrella organization.

Another issue with personal gifts is that they don’t qualify if they benefit you. Some examples may include the cost of books sold at a fundraiser or transport costs to an event. The price of the products you give to charity must also correspond to prevailing market rates.

The Issue of Earmarking

You cannot make tax credit federal deductions to an individual through a qualifying nonprofit. The donations given to a specific individual are considered to be gifts channeled through the organization. The principle of discretion stipulates that the charity must have the power to use the donation without the donor’s consent.

There are some limitations to the earmarking rule. The IRS may consider the intent of the organization when determining if the donation is deductible. For example, donating to a scholarship program qualifies and is not a case of earmarking.

Limits to Tax Deductible Donations

It is possible to qualify for tax deductibles if the worthy cause is outside the country. However, the nonprofit has to be registered in the United States.

You can also donate to crowdfunding causes as long as it is not an individual, a product, or a business. However, it is worth noting that promising to give something in the future does not amount to a donation. You can only get a credit for the contributions you make to tax deductible charities.

Before you can send your contributions, ensure that the organization is a nonprofit under section 501(c)(3). Keep your documentation in order, as you may need it when claiming credits for your donations.