Charitable Giving Tax Benefits

The U.S. Tax Code is sometimes considered by many accountants and tax lawyers to be extremely complex, when compared to the tax systems of some other developed countries. This is in part due to the fact that taxes are quite openly used to encourage behaviors that Congress deems desirable at a given time.

One thing that's remained somewhat consistent throughout history, however, is a desire to promote charitable giving. For that reason, the tax code has been set up to make charitable giving as beneficial as possible to the giver.

LegalMatch Law Library Managing Editor, , Attorney at Law

One of the most obvious benefits to giving to charity, besides the knowledge that you're helping causes that you believe in, is the tax deduction for charitable donations. Essentially, this reduces the actual cost of donating to charity. A tax deduction is simply a reduction in your taxable income. Typically, tax deductions for charitable donations are granted at a 1-to-1 ratio, so you get a tax deduction of one dollar for every dollar you donate to a qualified charity. Read more


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Examples of Charitable Giving Tax Benefits

For a simple example, suppose you earn $100,000 per year, and are taxed at a rate of 30% (your actual tax rate will vary – this example uses round numbers to keep things simple). With no deductions, your tax liability is therefore $30,000 (30% of 100,000).

However, suppose that, over the past year, you donated $10,000 to charity. That $10,000 is deducted from your income. So, your taxable income is now $90,000. 30% of 90,000 is $27,000. So, your tax liability has just been reduced by $3,000. As a result, that $10,000 donation actually cost you only $7,000.

Because higher income earners are taxed at a higher rate, a tax deduction saves them more money than the same deduction would for someone in a lower tax bracket. This encourages larger charitable donations by wealthy individuals – those who can most afford to make them in the first place.

If you have any additional questions about the tax benefits of charitable giving, you should speak with a qualified tax attorney in your area.


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