New Dollar-for-Dollar Arizona Tax Credit for S Corporations for Contributions to School Tuition Organizations
During 2015, Arizona added a new dollar-for-dollar state tax credit opportunity for entities treated as S-Corporations. A dollar-for-dollar credit means that for every dollar paid, the S corporation shareholder receives a dollar tax credit on their Arizona income tax return. Essentially this means a taxpayer gets to redirect their taxes to a qualified organization under this new law and will receive 100% Arizona tax credit for every dollar donated.
The qualified organizations under this new law are limited to School Tuition Organizations (STOs). Some of these organizations include the Arizona Education Scholarship Foundation, Arizona Leadership Foundation, and Tuition Organization for Private Schools. These organizations then award the contributions to K-12 students in the form of scholarships.
The process to take advantage of this Arizona tax credit is simple. First, the S-Corporation contacts a qualified STO and pledges a contribution of at least $5,000. Then a short 2-page application needs to be completed and submitted to the Arizona Department of Revenue (ADOR). The application is due July 1st. If the program cap has not been met yet, the ADOR usually approves the contribution for the tax credit within 20 days. Once approved, the corporation has 20 days to make the contribution to the selected STO.
The program cap was met for 2015 by mid-July. The credit application for 2016 will be available during June 2016 with applications accepted beginning July 1, 2016. This new program is very popular, and it is highly recommended that applications be submitted no later than July 1, 2016, for the upcoming year to ensure an opportunity to participate before the cap is met.
Upon filing the S-Corporation’s tax return, the business will report the dollar-for-dollar tax credit on their Arizona return. The credit will then be allocated according to the shareholders’ percentage ownership through their Form K-1’s. Ultimately, the credit will be realized on the shareholder’s individual income tax return and save them 100% of their portion of the credit in Arizona income taxes.
This program is an excellent way for business owners to redirect their hard-earned tax dollars back into the Arizona community. For more information or to download the application, see ADOR’s Corporate Tuition Tax Credits page.