A question about tax-deductible donations?

Question

I'm interested in tax-deductable donations. I used to think that you could just reduce the amount you donated from your taxes due. (For instance, if I donated $50 to a charity, and I owed $500 in taxes that year, my tax bill would be reduced to $450). But from what I'm reading now, it looks like your donation is subtracted from your adjusted gross income. That lowers your income for the year, and so lowers your tax rate. But this doesn't work out nearly as beneficial as I thought. As a rough estimate, it looks like a $100 dollar donation would lower my bracket to the point where I would only save about $20 on my taxes. Do I have it right?

Answer 1

That is correct. Donations are not taken out of your tax liablility directly. They are deducted from your income. This gives you an "Adjusted Gross Income" which is then taxed appropriately based on the amount and your filing status.

Answer 2

You're correct now, donations aren't subtracted from your taxes, they're subtracted from your income - and only if you itemize. It doesn't necessarily lower your tax rate, but would lower your taxable income, and therefore your total taxes, by a percentage equal to your bracket.

If you could just subtract it from your taxes, then you wouldn't be donating anything, just having the government make a donation to a charity of your choice. The way the law is, your donation gets subsidized, but you are the one giving most of the donation, which seems a lot more reasonable than the other way.

Answer 3

Yes, you have it right. There are certain instances when the IRS allows the charity you donated to, to give you a tax credit (which was your first scenario.) These are limited, doled out by the IRS to the charity business, and highly sought after by the charities.

For example, our local Humane Society is trying to raise money to remodel, and is applying to the IRS to be able to designate $20,000 in donations as tax credit rather than an income deduction. If granted, it will be up to the Humane Society to decide which donations are and aren't.

These are usually reserved for donors which make Significant Donations, not just a couple hundred bucks.

Answer 4

The effect you are thinking of is correct. ie - lower tax bracket. If you made $40,001 and you gave a donation of $100 then your AGI would be $39,901, which Could put you in a lower tax bracket, but Would make your taxable earnings less, which is where Most of the tax-relief comes from. Even then, you must itemize on your return, and the organization must qualify. Taking the standard deduction will ignore all donations, so will 1040EZ, and 1040A. (the short forms)

Answer 5

Yes, you are on the right track!

But don't forget one very important thing. When valuing for tax purposes, if you're donations and other potential itemized deductions total to be less than the standard deduction, then you'd be getting no tax benefit for the charitable contribution.

Please note that some things are set as deductions to keep the motivation going. Mortgage interest, for home purchases, donations for charities, etc.

Answer 6

That is the correct answer. To maximize the amount of deduction, figure out how much it would take to lower you to the next bracket and give that amount. I have never seen the tax benefit to be more than 30% of what you have given.

Answer 7

My interior reach church, and as much as now as i understand my national church, would not lobby, yet i think of the church homes that do attempt to effect law could be taxed. i think of simply by fact the Sierra club is involved appropriate to the atmosphere it truly is not a politically conceivable employer to guard.

Answer 8

Be sure you have a receipt. They are required now. Your check is no longer enough.