Tax and donations

[Anonymous]

Somewhat confused......could anyone help me figure about the tax and donations?

Our HHI is 250K, 2013 federal tax was about 50K (not much deduction except mortgage interest and donations). We donated about $7000, and I am wondering: if we donate $40k, can we bring out federal tax done to $10k, still pay overall $50k. Is there anything wrong with my calculation?

Thanks.

[Anonymous]

Watch your deductions. And, if you donate a huge amount one year, it better be very well documented and you'll need to keep up a pattern of donations for a few years in order not to prompt an audit.

[Anonymous]

OP here. Thanks.

My point is: for the same amount, I'd rather donate to useful places, such Children hospitals, etc, than pay federal tax.

[Anonymous]

No, charitable contributions are deductions from income, not credits. There is no one-to-one reduction in your taxes.

An additional $40k in donations would reduce your taxable income by that amount and then you'd calculate your taxes based on the lower taxable income. Roughly, you'd reduce your taxes by $13.2k (33% x $40k), assuming you're in the 33% tax bracket.

However, you would also need to figure out if you would hit the Alternative Minimum Tax and how a deduction that large would affect your total tax bill. There is also something called the the Pease limitation on deductions that might figure in the tax benefit calculations of charitable contributions, but that should not affect you since your taxable income is less than $305k.

[Anonymous]

Would AMT kick in?

[Anonymous]

Anonymous wrote:No, charitable contributions are deductions from income, not credits. There is no one-to-one reduction in your taxes.

An additional $40k in donations would reduce your taxable income by that amount and then you'd calculate your taxes based on the lower taxable income. Roughly, you'd reduce your taxes by $13.2k (33% x $40k), assuming you're in the 33% tax bracket.

However, you would also need to figure out if you would hit the Alternative Minimum Tax and how a deduction that large would affect your total tax bill. There is also something called the the Pease limitation on deductions that might figure in the tax benefit calculations of charitable contributions, but that should not affect you since your taxable income is less than $305k.

Excellent explanation.

So, OP, it seems that you don't need to donate that much.

[Anonymous]

No, donations are not dollar for dollar. They are added to your deductions overall, which is against income. So the savings is your marginal tax rate. Then you need to factor in any reductions in your overall deductions.

[Anonymous]

Anonymous wrote:Somewhat confused......could anyone help me figure about the tax and donations?

Our HHI is 250K, 2013 federal tax was about 50K (not much deduction except mortgage interest and donations). We donated about $7000, and I am wondering: if we donate $40k, can we bring out federal tax done to $10k, still pay overall $50k. Is there anything wrong with my calculation?

Thanks.

Your math is completely wrong. If you donate $40k, your actual tax savings for that donation is your top marginal rate (probably 28%) times $40,000. So a donation of $40,000 would save you roughly $11,200 in taxes. This is assuming you itemize.

[Anonymous]

Anonymous wrote:Somewhat confused......could anyone help me figure about the tax and donations?

Our HHI is 250K, 2013 federal tax was about 50K (not much deduction except mortgage interest and donations). We donated about $7000, and I am wondering: if we donate $40k, can we bring out federal tax done to $10k, still pay overall $50k. Is there anything wrong with my calculation?

Thanks.

Wouldn't everyone just do this, if this was how it worked?