FUEL OF THE NONPROFIT COMMUNITY By Tom Evans Tax Credit Contributions Becoming the Tax Credit Giving Guide Arizona’s nonprofits are becoming increasingly fueled by Arizona’s tax credit contributions. And despite changes on the federal level, these tax credits appear to be here to stay. First, for the uninitiated — the state of Arizona offers an opportunity to receive a dollar-for-dollar credit on your state income taxes when you donate to qualified organizations in five categories: • Arizona Qualifying Charitable Organizations , a catch-all for a broad swath of nonprofits. Limits are $400 for individuals and $800 for married couples. • Qualifying Foster Care Organizations , with limits of $500 for individuals and $1,000 for married couples. • Public School Tax Credit Organizations , with limits of $200 and $400. • Private School Tuition Organizations , for which limits increased this year to $555 for individuals and $1,110 for couples. • Certified School Tuition Organizations — which may receive your contribution if you’ve already maxed out the Private School Tuition Organization credit first — for which limits increased to $552 individually and $1,103 for married couples. If it sounds too good to be true, it’s actually not. You can absolutely give your money to a qualified charity and/or tuition organization instead of giving it to state government. So, over time, these contributions have become increasingly popular for Arizona residents. And, as you might imagine, for the nonprofits that receive the gifts. “Many nonprofits have grown dependent on Arizona tax credit contributions,” said Jarrett Ransom, president and CEO of The Rayvan Group, a nonprofit fundraising consulting firm. “This past year has been a roller-coaster ride for these nonprofits as we all sit on the edge of our seats to see what changes will be made. But one thing I have noticed is that more charities are promoting the tax credit angle year-round and not just near tax time anymore. They are including it in their newsletters, online and other collateral, and at fundraising events.” The roller-coaster ride she’s referring to is happening on the federal level. In the past, tax credit contributions could be treated the same as any other charitable contributions on your federal tax returns — a huge bonus for donors. But the IRS is currently contemplating ending this deductibility, among other changes that 2 FRONTDOORS MEDIA | 2018-19 TAX CREDIT GIVING GUIDE

took place as part of the Tax Cuts and Jobs Act of 2017. “There were two substantial changes at the federal level that will impact how tax credit contributions are reported and, in some cases, the economic benefit of making the contributions,” said Brenda Blunt, tax partner with Eide Bailly LLP, a prominent national accounting firm. “Prior to these changes, Arizona tax credit contributions were essentially ‘free’ for individuals to make up to the donation limits, assuming the donor had an Arizona income tax liability sufficient to absorb the credits.” The two changes, summarized to the best of our ability, are: • The Tax Cuts and Jobs Act of 2017 limited the deduction of state sales on taxes and property your federal tax return. As Blunt explains, “For those taxpayers whose state tax deduction on their federal return will be more than $10,000, they would have ‘made money’ by making the contribution and enjoying an increased charitable contribution deduction without a lower state tax deduction — the U.S. Treasury would lose money if they did not do something.” • In August, the Treasury Department issued a proposed change that would eliminate the deductibility of tax credit programs such as Arizona’s on federal tax returns. There’s a public hearing on this change in early November so it’s not a done deal yet, but if the change is enacted, it would apply to any contributions made after August 27, 2018. Nevertheless, these contributions are still an inviting way for tens of thousands of Arizonans to support their favorite charitable causes. “These contributions are very critical to our local nonprofit community,” Ransom said. “These organizations often designate these annual funds to a specific program or purpose … I always coach my clients to never become too dependent on one particular revenue stream. The healthiest nonprofits have a large pool of individual donors. This revenue stream should make up approximately 75 percent of an organization’s revenue stream. A challenge is that the tax credit donations also typically fall into the individual donor category, too.” But as long as tax credit contributions continue to be an option — and there’s no sign at the moment that the state legislature is going to repeal them — they will continue to be a fundraising tool in the nonprofit community. So maybe tax season isn’t the most wonderful time of the year. But for the nonprofit community, it’s becoming a critical time for their funding and sustainability. UMBRELLA ORGANIZATIONS Some charities under the Arizona Qualifying Charitable Organizations tax credit have a slightly different designation as “umbrella organizations.” They are eligible for contributions of $400 per person and $800 per couple as well, but are listed differently on the state of Arizona’s website. For example, Executive Council Charities, Valley of the Sun United Way and other United Way organizations across the state are considered “umbrella organizations” because they may receive tax credit contributions and distribute them to other nonprofit partners in the community. 2018-19 TAX CREDIT GIVING GUIDE | FRONTDOORS MEDIA 3