Donating and Tax Breaks

August 4th, 2013
ea, taxes
People often put down others as donating "for a tax break". Sure they look generous, but they really just want to save money. But that's not how it works.

In the US you can report money you donated, and for tax purposes that money is treated as if you hadn't earned it. While this does decrease the amount you pay the government, you don't come out ahead financially compared to not donating.

Let's look at an example. The median family pays taxes at a marginal rate of 15%. That means that if their income were to go up by $1K, federal taxes would go up by $150. If instead of keeping that $1K the family donated it [1] they could "deduct" $1K from their federal income. This would decrease their tax bill by $150, putting it back where it was before.

(This is particularly strange because people focus on their tax break and not the actual effects of their donation. For example, this CNN article writes that "Thousands of Americans who donated to charities last year in the wake of Superstorm Sandy and the school shooting in Newtown, CT. may not get the tax benefits they were expecting" instead of "Thousands of Americans ... were duped into donating to scams." Of course it's bad that these donors ended up spending $X when they thought they were spending 85% of $X, but that shouldn't be the main story.)


[1] This is only fully true if the family was already itemizing donations. If you don't have anything else you can deduct then you have to donate more than the "standard deduction", about $6K/person, in order to have any tax benefit from donating at all.

Comment via: google plus, facebook

Recent posts on blogs I like:

Contra Scott Alexander On Apologies

I really need a short word for "complicatedly in favor of"

via Thing of Things September 12, 2024

Don't Help Kids With Contra Dancing If They Don't Need Help

If you're a kid like me, most kids have probably never heard of contra dancing before. You're probably wondering: contra dance -- what's that? Contra dancing is in some ways similar to square dancing. It's a group dance with a caller and…

via Lily Wise's Blog Posts September 9, 2024

Two 19th-century missionary memoirs in China

Life for an American family in 1860s China The post Two 19th-century missionary memoirs in China appeared first on Otherwise.

via Otherwise August 24, 2024

more     (via openring)