How to Assess Charitable Contributions by Tax Bracket

The tax value of charitable contributions depends on what tax bracket or brackets the deduction is having its effect. Any part of the contribution that is in a higher tax bracket will have a higher tax value. You should consider delaying contributions with a lower tax value to a subsequent year. Limitations on allowable contributions are also a factor to consider.

Difficulty: Moderately Easy

Instructions

1. Estimate your AGI for the current year so that you can see which bracket you will be in after your deductions for exemptions and estimated itemized deductions.

2. Determine what tax effect will occur if you increase or decrease your charitable contributions. Contributions that reduce or eliminated taxable income in a higher tax bracket will have a significantly greater tax value.

3. Calculate the tax value of the contribution. For example, if you have taxable income in the 25 percent tax bracket and make a charitable contribution of $10,000, the tax value of the contribution is $2,500. If you are in the 15 percent tax bracket, the value of the contribution is only $1,500.

4. Consider delaying some contributions until the subsequent year if the tax value will be greater than in the current year. This is especially significant if you are contributing capital gain property and will be affected by the 30 percent AGI limit.

5. Maximize the tax bracket effect of capital gain property by spreading the contribution of such property over several years to avoid limitations. Contributing appreciated property has the beneficial effect of not having to pay tax on the appreciation and getting a tax deduction for it.

Tips & Warnings

• The total allowable contributions are affected by the general 50 percent of AGI limit or the 30 percent of AGI limit.