Are Charitable Tax Deductions Based on Tax Bracket?

Giving helps relieve your taxes, regardless of bracket.

Giving helps relieve your taxes, regardless of bracket.

Give what you can, and you can get a benefit from Uncle Sam regardless of your tax bracket. Charitable deductions are not based on the bracket into which your income falls. In addition, the more you make, the more your gift helps you out when tax season rolls around. The Internal Revenue Service does have requirements, however, to ensure your gifts meet government guidelines.

Basics

If you file a Form 1040 with the IRS and itemize your deductions, you can deduct charitable donations. The gift has to go to what the IRS deems as a "qualifying organization," which usually describes a non-profit organization. The IRS provides examples of what qualifies in Publication 526, which includes guidelines when you're figuring out what you can and can not deduct. A non-qualifying organization, by IRS standards, exists for personal profit, to change a law, or elect a candidate. You also can't deduct the cost of a raffle ticket or bingo game, the value of your time if you donate a professional service, or the value of any benefit you received. If, for example, you attend a charity dinner that costs $100 a ticket, and the cost of the dinner has a fair market value of $25, you can deduct only $75 of the ticket cost.

Bracket Impact

While the amount of any gift helps decrease your tax liability, here's why it's even better for those who earn a lot. It's simple math. If you're in the 15 percent tax bracket and give $200, the cost of your donation is $170 (that's the $200 gift minus the tax savings of $30). That same gift costs you only $130 if you're in the 35 percent tax bracket (the $200 gift minus the tax savings of $70).

Documentation Requirements

High bracket or low bracket, the IRS needs specific forms and documentation to allow your deduction. When you file a Form 1040, you use Schedule A to list your charitable giving. The IRS uses this schedule to review the organizations and the gifts you've listed. The IRS doesn't allow the gifts to total more than 50 percent of what you earn (called your "adjusted gross income") except in highly specialized cases. But Schedule A in and of itself isn't enough. You must also provide receipts for your gifts. If you give cash, request a receipt with the organization's name, the amount and date. If you give automatically via a payroll deduction, keep a pay stub, your pledge card, or use your W-2 to prove you gave your gift.

Making Non-Cash Gifts

If you're not in a position to give cash, you can write off property gifts such as your old college car, furniture, clothes or electronics. The IRS defines levels of giving, and requires more documentation as the value of the gift increases. If you give something worth less than $250, you need only provide a description of the donated item, the charity you gave it to, the date, the location of the charity and the fair market value of the item. If you're not using fair market value, you've got to tell the IRS how you computed the value of what you donated. If the donation is worth more than $250, but less than $500, you need to include all of the details previously mentioned as well as a written acknowledgment of the gift from the charity. That acknowledgment must describe the gift, its value, the date of the donation and the charitable organization's name. Gifts of more than $500 but less than $5,000 require a clear definition of how and when the item was received and its cost. Gifts worth more than $5,000, such as an antique desk you simply can't keep, require a written appraisal to stand as a donation tax write-off.

About the Author

Carolyn Williams began writing and editing professionally over 20 years ago. Her work appears on various websites. An avid traveler, swimmer and golf enthusiast, Williams has a Bachelor of Arts in English from Mills College and a Master of Business Administration from St. Mary's College of California.

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