Charitable donations are an essential income stream for many non-profit organizations that do good works like caring for animals, the homeless and people affected by disasters. Besides helping to fund causes you feel are important, money you give to charity is tax deductible. The amount of money you save on taxes for charitable giving depends on a variety of factors like your income level, filing status and other eligible deductions.
Charitable Giving Basics
Charitable donations are itemized tax deductions. Itemized deductions are a variety of expenses that the IRS allows taxpayers to deduct from their income taxes in place of a standard deduction that is available to all taxpayers. The standard deduction is $5,700 for single taxpayers for 2010 returns and $11,400 for married taxpayers filing jointly. If the total of all your itemized deductions -- such as charitable contributions, home mortgage interest and property taxes -- is above the standard deduction, you will save money by choosing to deduct your itemized deductions instead of the standard deduction. If your itemized deductions are not greater than your standard deduction, you will not save money by itemizing. In other words, if you gave a few thousand dollars to charity but you have no other itemized deductions, you will not save anything on your taxes.
Savings From Tax Deductions
If your itemized deductions exceed your standard deduction, the amount that you get back due to charitable giving will be determined by your income tax rate. For instance, if you are in the 25 percent income tax bracket, you will save 25 percent of the amount of your donations. Those with higher income stand to save more since they face higher tax rates.
The size of the deduction you can take for charitable giving is limited to a certain percentage of your income based on the types of contributions you made. The IRS states that your deduction for charitable giving cannot exceed 50 percent of your adjusted gross income and gifts given to certain organizations, such as "veterans' organizations, fraternal societies, nonprofit cemeteries, and certain private nonoperating foundations," are subject to a 30 percent limit.
Gifts of property to charity qualify for tax deductions up to the fair market value of the property. For instance, if you gave $500 worth of used clothing to charity, you could take a $500 itemized deduction on the donation. Donating property is a way to benefit charities and lower taxes without spending cash.
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