Problems with AZ tax

[blueridge712]

We received an email from TurboTax saying our AZ return was rejected because of an issue with charitable deductions. It said for us to subtract the sum of line 5C and 6C from line 4C. All of those lines were $225, so subtracting them gave us a total of -$225. The next line, 7C, said that if the number was less than 0, enter 0. TurboTax did that, which was correct. The state said there was a problem with line 6C, which is Total Charitable Contributions made in 2020 for which you are claiming a credit under AZ law for the current (2020) or prior (2019) tax year. We made a total of $225 in charitable contributions last year, so I'm not sure what needs to be changed.

[Lindy123]

I got an error message after running the "pre-check" before filing my returns, regarding a charitable donation I made that was eligible for an AZ tax credit. TurboTax had me go back to Federal, and deduct any charitable contributions eligible for an AZ tax credit, and instead, had me count that as an estimated tax payment to Arizona. This made sense to me. Why would I be allowed a Federal charitable deduction for something I'm getting an AZ tax credit on, (and since an estimated tax payment has the same effect as a tax credit). But after I followed Turbo Tax's instructions on this, and filed, AZ has now sent me a letter, because on my AZ tax form, there is a credit AND there is also an estimated tax payment, in the same amount, for my charitable gift. So unbeknownst to me, I had double-dipped! Must be a bug in the system.

[BillM223]

"TurboTax had me go back to Federal, and deduct any charitable contributions eligible for an AZ tax credit, and instead, had me count that as an estimated tax payment to Arizona."

What do you mean by "TurboTax"? The software? Someone in this Community? An employee on the phone?

What you report makes no sense, so if indeed the software told you to do this, can you tell us:

1. Which platform (Online? CD/download?)

2. Which product? 

3. Which charitable contribution?

[Diane_]

Hello, I'm new to forums, I hope I'm not doing the wrong thing by replying on someone else's question (if so, I apologize). I've been struggling with this for over 2 weeks now. Luckily I didn't think it looked right so I didn't file yet; I suppose my AZ return would have been rejected.

1) Platform & Product: Windows Desktop Home & Biz version, installed from CD (I applied all the online updates)

2) I have received the same information from multiple sources:

a) TurboTax Help: In the Arizona interview, on the page that says "Adjustment to State Income Tax Deduction", when you click the "Learn More" link, you get the following information (I only copied part of it here):

Safe Harbor - Guidance on Federal Itemized deduction taken as State Income Tax Deduction for Donations Made to Charitable Organizations

If you made a donation in exchange for a state tax credit and claimed itemize deductions on your Federal return, your Federal return charitable contribution deduction must be reduced as a result of receiving or expecting to receive this state tax credit. You may qualify for a safe harbor that allows you to treat some or all of the disallowed charitable contribution as a payment of state and local taxes. Remove any disallowed charity donation from your Federal Schedule A and enter your safe harbor amount as an estimate paid to Arizona on the Federal return. Return to this screen and enter the amount claimed as Arizona Estimate Tax Payments. If you do not claim the state tax credit for this donation, you may continue to claim the charitable deduction on your Federal and Arizona return. (there is more after this.....)

b) From this community, see these related posts:

https://ttlc.intuit.com/community/tax-credits-deductions/discussion/charitable-contributions-and-sta...

https://ttlc.intuit.com/community/tax-credits-deductions/discussion/re-sched-a-safe-harbor-for-chari...

My post explaining the question in way too much detail (nobody answered it yet): 

https://ttlc.intuit.com/community/tax-credits-deductions/discussion/irs-notice-2019-12-safe-harbor-r...

c) From a TurboTax support person over the phone:  I was told that since TurboTax didn't find any errors in my return, that it must be right and I should go ahead and file. I was unable to get the person to understand why I thought the system was allowing me to double-dip after one hour on the phone.

d) From IRS Publications/Notices: 

https://www.irs.gov/newsroom/final-regulations-on-charitable-contributions-and-state-and-local-tax-c...

https://www.irs.gov/pub/irs-drop/n-19-12.pdf 

https://www.federalregister.gov/documents/2019/06/13/2019-12418/contributions-in-exchange-for-state-...

3) AZ contributions taken as tax credits: 

a) Donations made in Q1-2020 and taken as tax credits on my 2019 AZ return (AZ allows this): $400 for a qualified charitable organization (AZ form 321) and $500 for a qualified foster care organization (AZ form 352)

b) Donations made in 2020 and taken as tax credits on my 2020 AZ return: $400 for a qualified charitable organization (AZ form 321), $500 for a qualified foster care organization (AZ form 352), and $200 for a public school (AZ form 322)

4) Questions:

a) Which amounts should be entered as charitable contributions versus estimated tax payments on federal, then what adjustments need to be entered on the AZ form to avoid double dipping?

b) What needs to be done when part of the AZ tax credits were for 2019 and part were for 2020?  (If I understand correctly, AZ forms say you have to make an adjustment on your 2020 return for tax credits paid in 2020 but claimed on your 2019 return, in addition to the adjustment for tax credits paid in 2020 and claimed on your 2020 return.)

If you can provide any guidance, I and others in my same situation will be very grateful! 

[Lindy123]

My AZ tax return was accepted, BUT then I received a letter from the AZDOR saying I needed to pay them the $400 that came through as an estimated payment on my state return. I also need to file an amended return now. If I had it to do again, I would print the AZ return and remove that "estimated tax payment" from the form, and I would mail it in. 

[QCOQU3STI0NS]

Where should the  AZ Dollar for Dollar cash QCO donation be inserted?  Listing it on the form with other donations as cash does not generate the credit which should be directly refunded.  

[Lindy123]

There is a question in TurboTax that will ask you about that, specifically. 

[Lindy123]

I was using TurboTax online, and following the instructions in the online software.

[cm521]

Hello,

2021 tax year

First time trying to enter the Charitable tax credit for AZ state return.  I am so frustrated trying to follow Turbo Tax directions I am considering skipping the donations.  TT system is using AZ standard deduction (for Fed return also) but my understanding is that a Charitable donation can still be claimed for amounts up to the limits. My AZ tax liability for 2021 would be $1461 so I want to give the money to charity instead of AZDOR.  I filled out the Charity information and amounts (married joint filer) of $800 QCO form 321and $641 for QFCO form 352.  I will be sending the charity checks in Feb 2022.  I am getting an error that says "Form 140 gifts claimed too large".  Am I supposed to change something on the Federal return in order to claim the AZ state tax credit?  Turbo tax does not lead me there or explain what I am supposed to do to correct the error.  I feel like it is something simple that I just cannot get to.

Thank you.

[MarilynG1]

If you are using Itemized Deductions in your Federal return, and included your Arizona donations in this amount, delete them from your Federal return (or don't claim them on your Arizona return).

Otherwise, you are 'double-dipping' since you got credit for these donations reflected in your AGI that carries over to Arizona. 

If you are using the Standard Deduction for your Federal return, for  Arizona Form 321, Credit for Contributions to Qualifying Charitable Organizations, the maximum donation amount is $800 for MFJ. 

Make sure your organization codes are entered correctly, as well as for Arizona Form 352, Credit for Contributions to Qualifying Foster Care Charitable Organizations, where donations are limited to $1000 for MFJ, $500 for Single taxpayers.

Since you are within these limits, and this is not a known issue in TurboTax, you could try deleting/re-entering, since we can't see your return in this forum.

In TurboTax Desktop, use FORMS mode to delete a form.  Click for instructions on How to Delete a Form in TurboTax Online. 

[pastreit]

@MarilynG1, even with the Standard Deduction on my Federal return, there is a deduction of up to $600 (MFJ filing status) for charitable contributions (line 12b, Form 1040). If any of that $600 is also an Arizona Qualifying Charitable contribution, do I need to subtract it to avoid 'double-dipping'?

After running through everything with TurboTax (PC download), I pass all the checks and receive both a deduction on the Federal return and a dollar for dollar credit from Arizona for some of the same contributions.

TT did ask about that in the state return, but found the wording to be confusing. It mentioned federal Sch A, which I don't use since I used the standard deduction, and filled in $800, which doesn't match anything except the maximum Arizona Qualifying Charitable contribution. I left it at $800 but have no idea how that answer was used. Can you clarify what's going on here?

[MarilynG1]

Since you did not file a Federal Schedule A, you should enter $0 on this screen.  The $600 Charitable Contribution you received on your Federal return for the CARES Act does not count as an itemized deduction for your Arizona charities.

Arizona will ask you to enter any qualifying charitable contributions in the state interview. You will enter the Charity Code, and Amount.

Click this link for more info on Reporting Charitable Contributions in Arizona. 

[pastreit]

@MarilynG1, I appreciate your help, however when I changed that value to $0, it became clear to me that it's the wrong thing to do and $800 was correct after all.

That entry ends up on AZ Form 140, line 5C of Box 44C, which is the "Total charitable contributions made in 2021 for which you are claiming a credit under Arizona law..." The 5C amount is subtracted from the total charitable contributions so a 25% deduction can be given to contributions that DO NOT qualify for the credit. Setting the number to zero definitely causes double dipping on the AZ return because the $800 would get a 25% deduction AND a dollar-for-dollar credit (on line 51 which comes from Form 301).