What is the difference between Tax exempt and Tax deductible?

Question

I am donating somethings, instead of trying to sell it as my girlfriends have said, I don't have the time this time of year and it will benefit others, but still I want the best tax relief, as we are taxed out the wahzoo! Thanks in advance.

Answer 1

Tax exempt means that someone or an organization doesn't have to pay some sort of tax.

A tax deduction is something you can subtract from your income before you figure your taxes. A charitable contribution falls into that category.

There are a number of rules to be able to get any tax savings from a donation. First of all, it must be made to a qualifying organization - if you are donating to Salvation Army, Goodwill, St Vincent de Paul, or someplace like that, they do qualify. Secondly, you have to itemize on your tax return - if your total allowable deductions are less than your standard deduction, then you don't itemize, and you get no tax benefit from the donation. If you are single, your standard deduction for 2007 is $5350, and if you're married filing a joint return, it's $10,700.

Also, if these are household items, they must be in at least good used condition, and you must get a receipt from the organization. The amount of your deduction has no relation to the original cost of the items, it's their used fair market value which is basically what the organization will sell them for.

As an example,say you donated a couch that originally cost $1000, but they'll sell it for $100. Your deduction is $100. Your actual tax savings is at most the deduction times your tax bracket. If you are in a 15% tax bracket, your tax savings for the donation would be 100 * .15, or $15.

There are special rules for the deduction amount if you donate a car.

Answer 2

Tax exempt applies to income or cash that you receive that is not subject to tax. Municiple bond interest or a gift that you receive is tax exempt.
A tax deduction is an item that you spend money on that is deductible on your tax return. Mortgage interest, state income tax and charitable contributions are tax deductible.
A deduction only saves you part of the cost of what you spent.

Answer 3

Exempt ability something that's not taxed in the 1st place. Write-off is a slang term for deduction. this is something you are able to subtract from income that could desire to ideally be taxed to decrease your taxable income quantity.

Answer 4

I donate a lot of things and I rarely get a tax advantage--but then I don't itemize every year. (If I really wanted the money, I'd still sell the items.)

Charitable donations are a schedule A item. See IRS publication 526. The items you donate must be in good, usable condition. If you donate more than $500 (fair market value) of items, you'll need to attach a form 8283 to the tax return showing to whom you gave the items and what you donated.

Due to abuse, the IRS has a substantial record keeping requirement for noncash donations. (See pub 526.)

Answer 5

Tax-exempt is something that is not taxed - for example, interest from most municipal bonds. Tax-deductible is a cost for which you can get some kind of "credit" on your income tax - like mortgage interest.