How do charity-based tax deductions work (United States)?
I'm not quite clear how this works. Is it such that, (numbers are completely made up obivously) a) if I am going to be taxed 0 based on my 00 incom...
I’m not quite clear how this works. Is it such that, (numbers are completely made up obivously)
a) if I am going to be taxed 0 based on my 00 income, and I donate , I will only have to pay the government
or
b) if I am going to be taxed 0 based on my 00 income, and I donate , I get to "pretend" that I only made 90 and they then change how much i am taxed (.50 in this case)
Also, do different rules apply for businesses and individuals?
anyone can make tax-deductible donations.
they work like this:
1) you make 10,000 per year (W2)
2) you donate 1,000 to charity
3) when you file your taxes, you get to subtract that 1,000 from the amount reported on your W2 (10,000).
so, instead of paying tax on 10k, you only pay tax on 9k.
the only complication is that in order to take advantage of the tax deduction, you have to itemize. if you just take the standard deductions, you won’t see any benefit from making a deductible donation. so, if the standard deduction is more than your itemized deductions would be, then you wouldn’t see any tax benefit.
but even if you don’t get a tax deduction, donating to charity is still a good thing to do. i hope your generosity doesn’t depend on your taxable income.
when you itemize deductions, including charities, it does not reduce your tax dollar for dollar,
it reduces your taxable income and depending on the bracket you fall in would result in the % that the deduction benefited you with your tax liability
When you donate to recognized charities, you generally deduct the amount of your donation from your taxable income. So, it’s more like your scenario b. Also, for federal income tax purposes, all of your itemized deductions must be greater than your standard deduction for you to gain any tax benefit from charitable donations. Some states will allow you to claim charitable donations whether or not they are itemized on your federal return.
b)
It’s a deduction for either an individual or a business. The tax structure is different for a corporation though than for an individual.
a) is totally wrong.
b) is on the right track, although the numbers are wrong, and you do not get to "pretend". If you pretend that you made $1990 and donated nothing, then you lose the tax benefit of the donation and must pay the full $100. To pay the smaller amount ($99.50 according to your example), you must admit that you made $2000 and donated $10 (or whatever the numbers were).
Check out this article on IRS Charity Taxes. It might clear up your questions about charitable deductions, plus they have a form you can fill out or a number to call if you need help figuring out your charity taxes:
http://www.irs-tax-settlement-hq.com/charitable-deductions-irs-taxes/tax-deductions-irs-help/tax-saves-charity-irs/get-irs-charity-taxes.html