Last week there was a very heated discussion on Punch Debt’s site about whether or not it is “right” to take a tax deduction on charitable giving. Being someone who is always willing to insert myself into a heated debate, I’m happy to share my two or three cents here.
Not only is it absolutely “right” to write off charitable donations, you would be stupid not to take a deduction for charitable donations if you qualify for them.
An Example of Charitable Deductions
I want to make sure everyone understands the charitable deduction before we get deeper into this discussion.
In order to get a tax benefit from charitable donations, you need to itemize your deductions. Everyone gets a standard deduction ($5,800 for single people and $11,600 for married couples for 2011 taxes) that reduces their taxable income. If you can’t itemize more than the amount of the standard deduction, then you can’t take the benefit anyway. I don’t have any numbers, but I’m willing to bet a heck of a lot of people who donate to charity can’t itemize deductions and get no tax benefit at all.
Now let’s pretend that a non-married person has exactly $5,800 of itemized deductions (maybe from interest on a mortgage, medical expenses, or other itemizable expenses). In this case, every dollar that person donated to a charity would reduce his taxable income if he itemizes his deductions.
For example: Eduardo makes $60,000 a year and owns a home. He had $5,800 of itemized deductions thanks to his mortgage interest, and also donated $1,000 to his favorite charity. If Eduardo were to itemize his deductions and take the tax break for his charitable donations, he would save himself $250 on taxes.
That’s right folks; he donated $1,000 but only got $250 back in taxes (25% because he’s in the 25% tax bracket).
Take Every Deduction You Can Get
In what world is it wrong to take a perfectly legal tax deduction? Especially a deduction for giving away money to a non-profit organization? Let me break down the whole process very simply.
You earned money. The government took a percentage of your money. The government will give back a little bit of the money they took if you fulfill the requirements they set. You fulfill the requirements. You take back what the law says you can have.
I don’t see any legal or moral grey area there.
To say it is immoral to take a tax deduction is to suggest that the government has a right to that money in the first place.
And we already know that there shouldn’t be an income tax at all. If you agree with me there, then there’s really nothing to discuss. Take every legal deduction you can find and bring your tax burden as close to zero as possible.
Again, let me stress the word legal. Although I don’t necessarily agree with the current income tax laws, I also don’t recommend breaking them. As long as you are taking legal deductions then you are completely morally justified.
Don’t Donate Worthless Crap
There is one valid point made on the Punch Debt site about people donating worthless old crap and then assigning a value to it as if it were worth anything. This is obviously wrong and immoral. In fact, I covered this when I said you should take legal deductions. It’s not legal to lie about the value of what you donate.
I just wanted to be very clear that donating cold hard cash or items that have actual value gives you a legal and moral right to a deduction, while donating crap gives you neither.
Readers: Is it wrong to take a legal tax deduction when you donate to charity. Should you ever let the government keep more of your money than they are legally entitled to?
Kevin McKee is an entrepreneur, IT guru, and personal finance leader. In addition to his writing, Kevin is the head of IT at Buildingstars, Co-Founder of Padmission, and organizer of Laravel STL. He is also the creator of www.contributetoopensource.com. When he’s not working, Kevin enjoys podcasting about movies and spending time with his wife and four children.
Write off EVERYTHING you can!
Plus, it’s not like the government puts our money to good use.
Bingo!
If the IRS will let you do it, DO IT! It’s legal and encouraged, so why not? Though I don’t think most people give money *because* of the tax deduction, I believe it is an incentive to give.
I am a member of a church that encourages a 10% tithe, and I know a lot of people who pay faithfully even though they don’t itemize. I would pay it either way, but I consider the tax deduction an extra blessing 🙂
I consider any tax deduction a blessing. 🙂
Like I said on PDITF, I donate because I can and not because of the tax break. If I had enough to write off I would TOTALLY take the tax break, but since I don’t have a mortgage, high medical bills or high un-reimbursed job expenses I don’t itemize.
You failed to mention some people are required to itemize (i.e. two people who choose married filing separately and one itemizes, then the other has to). In this case, do all you can to maximize you write offs.
I’m with you, I don’t see any moral problems with this, other than the rich do in fact see a higher benefit from that, but hey, if we can get the rich to do more “good” with their money, then so be it.
I think it’s obvious to anyone who understands how it works that people donate because they want to. It doesn’t make sense to donate $100 to save $25 on your taxes. That’s always a net loss.
That was the point of the article. To try to get people to understand that.
I’m glad you and the rest of my readers seem to get it. The person at PDITF didn’t seem to get it.
My partner and I donate to organizations we feel strongly about supporting, but we structure our giving to maximize our tax benefits. Since we are not married (not legally allowed to be) we can’t file a joint tax return. But we can take advantage of being allowed to file as two singles.
Since my income is higher and I am in a higher marginal tax bracket, I make sure all of our itemized deductions come from my sole checking account. We live together, but the mortgage is in my name alone, and I pay the property tax. I also use my checking account for all charitable donations, even though it is a collective decision to donate. So at the end of the day, I can itemize our deductions and he can still take the standard deduction for himself.
If the government is going to tell me I’m not suitable to marry the man I love, then I’m going to make sure to take every opportunity that I can to take advantage of that situation.
Good for you and your partner. If I had my way, the government would get their nose out of the marriage business altogether.
As long as the federal government tries to manage our personal lives, you may as well do whatever you can to save as much tax money as possible.
Such a valid point! You earned it, if the government is willing to give you some of it back then why not take it?
sigh. this is why i wish i could itemize.
I might be able to itemize. I’m just under the limit with charitable donations alone. Maybe if I add sales tax, I can be over the limit (since there is no state income tax in Texas, we can use sales tax).
I did a cursory skimming of the convo at Punch Debt about deducting charitable donations and find it downright silly that people wouldn’t write off charitable donations.
I don’t donate as much as I’d like to (more like $20 here and there to various causes) but if I donated enough to get a tax benefit I definitely would. It would be ridiculous not to.
As my dad always says: people are strange.
Im not saying I don’t like money, but if Eduardo donates $1,000 and then the government “gives” him $250 for doing so, its like he gave $750 and obligated the goverment to donate the other $250 to the charity of his choice.
Yes, I am probably stupid, but I don’t take that write-off because the government is broke enough without giving money to my favorite charity.
We’re among those who donate money without realizing any tax benefits. We have no mortgage and no major medical expenses so charitable contributions alone don’t add up to more than two standard deductions. I guess I shouldn’t complain though, because if the standard deduction didn’t exist and we had to itemize our tax bill would be higher. *shrugs*