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In order to get the potential tax benefits of a charitable contribution of money or property, you must file an IRS Form 1040 and itemize your deductions on “Schedule A.”
If you do not file an IRS Form 1040 then there is no reason to take a charitable contribution as a deduction since you likely do not earn enough taxable income to require filing a return.
Itemize Your Deductions
Since it is required that you itemize your deductions in order to take advantage of the charitable contribution tax deduction, you should consider weighing the costs and benefits of itemizing your deductions vs. taking the standard deduction before making charitable contributions. If your standard deduction is more than the total of your itemized deductions than it might be worth taking the standard deduction instead of itemizing your deductions.
Common Tax Deductions
The most common tax deductions that must be itemized on “Schedule A” in order to be taken are as follows:
- Mortgage interest deduction
- Deduction for state and local taxes paid (SALT capped at $10,000)
- Medical expense deduction
- Charitable contributions
Tom and Christine are a married couple who file joint income tax returns and typically donate $3,500 each year to their church (a qualified charity). They are eligible for a $24,400 standard deduction in 2019.
Their itemized deductions are as follows:
- Mortgage interest deduction – $10,000
- State income tax deduction – $6,000*
- Local property tax deduction – $11,000*
- Charitable contribution – $3,500
Total itemized deductions $23,500
*SALT capped at $10,000
In this case, it makes more sense for them to take the standard deduction of $24,400 instead of taking $23,500 in itemized deductions.
Assuming they want to continue making annual charitable contributions of $3,500 for reasons other than the tax benefits, Tom and Christine could always skip a year and make double the charitable contributions the next year, or consider making one charitable contribution of $3,500 in early January and make another charitable contribution of $3,500 at the end of December. The idea is to increase the charitable contribution in a given year to $7,000 so that they can realize the benefit of itemizing their deductions (27,000 instead of $23,500).
For most people deciding whether to donate to a charity isn’t usually motivated by the potential tax deduction. But, knowing the rules and limitations could help make the most of your charitable giving.