Tax day came late this year, April 18th. Fortunately, I have submitted everything. And there was a whole lot to submit this year with earnings from Lyft, internet reselling, and bank bonuses. One new thing this year was that I was able to itemize deductions which was another form but reduced my taxes.
How donations work
People sometimes say ridiculous things like of course she donates, she can write it off on her taxes. Well, what does this mean? If you donate $1 do you save $1? Obviously not, otherwise we could all donate our entire incomes and still have the same amount of money. What the donation does is lower your taxable income. Say your income was $80,000 and your tax bracket is 20%. If you donate $1 then your taxes will go down by 20 cents. Therefore it “costs” you 80 cents to donate a dollar. In some people’s extreme tax situations they may be at a 50% effective rate and therefore donating $1 “costs” 50 cents. Donating is still coming out of your pocket and is not done selfishly.
Tax mechanics of donations
Donations are considered under itemized deductions. The government allows you to take either itemized or a standard deduction. The standard deduction is $6,300 per person. So even if you donated $6,000 you would still take the standard deduction and therefore each $1 is “costing” you $1. However, there are many things also included in the itemized deduction such as mortgage interest. If you have a sizable mortgage then you may be better off with itemized deductions. Either way, calculate both ways and take the larger amount.
Cash is obviously deductible, but so is giving stuff away. Last year we donated so much stuff to the Goodwill because we moved at least twice including to Taiwan and Lisbon. One good thing about moving is you get rid of a ton of stuff, sell some, and then throw out your back moving everything else. Having a Kindle is great because I can stop collecting books.
Donations may not help reduce your taxes, but they will likely help the organization you give to. One such group I support is Compassion which helps poor children. I even get to write to and receive letters from to the child in Peru I sponsor. However, whatever organization you plan to give to please research so you know how your gift will be used. As an American I have so much and feel that sharing the abundance with others much less fortunate is a great use of my money.