Charity-related Tax question: If I earn $80K per year and I donate $500 for charity, what's my tax benefit?

Question

I'm trying to figure out how the tax benefits are computed when I make tax-deductible donations for charity. If I donate $1000 for charity, does it come out of the amount I would have been taxed anyhow? Or do I pay $200 out of pocket and the remaining comes out of Uncle Sam?

Answer 1

At $80K income, you're probably in a 25% bracket. If you are, then if you donate $1000, you'd be saving $250 in taxes, so you'd actually only be $750 out of pocket. This of course assumes that you itemize - if you don't, then you can't deduct charitable contributions.

Answer 2

It is not necessarily as simple as determining your tax bracket and making a quick calculation.

First, you would need to determine if you are doing a standard deduction or an itemized deduction. You don't get to do both. If the sum of your itemized deductions is greater than the standard deduction, then being able to add the charity donation to the itemized deductions has a tax benefit. If not, it is not going to make a single bit of difference.

So second, if you have significant itemized deductions, then the amount you donate increases the itemized deduction, which in turn decreases your taxable income. In turn, depending on the amount of your taxable income, your tax due would be reduced, but not necessarily by a simple percentage.

Answer 3

You are probably in the 25% tax bracket. If you itemize and take a $500 charitable donation, it will reduce your taxes by $125. So effectively you are paying $375 and Uncle is paying $125.

Answer 4

A $1000 dollar donation reduces your taxable income from $80K to $79K. Just a different tax table

Answer 5

When you do your taxes, use turbo tax on the net, you can put in any amount you want to see how much it will effect your return or tax payment. I would say 500 would not amount to much of a difference.